Correlation Between GM and Deluxe
Can any of the company-specific risk be diversified away by investing in both GM and Deluxe at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining GM and Deluxe into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Deluxe, you can compare the effects of market volatilities on GM and Deluxe and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in GM with a short position of Deluxe. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Deluxe.
Diversification Opportunities for GM and Deluxe
Poor diversification
The 3 months correlation between GM and Deluxe is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Deluxe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deluxe and GM is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on General Motors are associated (or correlated) with Deluxe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deluxe has no effect on the direction of GM i.e., GM and Deluxe go up and down completely randomly.
Pair Corralation between GM and Deluxe
Allowing for the 90-day total investment horizon GM is expected to generate 1.58 times less return on investment than Deluxe. But when comparing it to its historical volatility, General Motors is 1.54 times less risky than Deluxe. It trades about 0.32 of its potential returns per unit of risk. Deluxe is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest 1,892 in Deluxe on August 27, 2024 and sell it today you would earn a total of 433.00 from holding Deluxe or generate 22.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Deluxe
Performance |
| Timeline |
| General Motors |
| Deluxe |
GM and Deluxe Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Deluxe
The main advantage of trading using opposite GM and Deluxe positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Deluxe can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Deluxe will offset losses from the drop in Deluxe's long position.The idea behind General Motors and Deluxe pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Deluxe vs. Criteo Sa | Deluxe vs. Emerald Expositions Events | Deluxe vs. Marchex | Deluxe vs. Integral Ad Science |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Transaction History module to view history of all your transactions and understand their impact on performance.
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