Correlation Between GM and Desert Mountain
Can any of the company-specific risk be diversified away by investing in both GM and Desert Mountain 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 Desert Mountain into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Desert Mountain Energy, you can compare the effects of market volatilities on GM and Desert Mountain 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 Desert Mountain. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Desert Mountain.
Diversification Opportunities for GM and Desert Mountain
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Desert is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Desert Mountain Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desert Mountain Energy 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 Desert Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desert Mountain Energy has no effect on the direction of GM i.e., GM and Desert Mountain go up and down completely randomly.
Pair Corralation between GM and Desert Mountain
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.35 times more return on investment than Desert Mountain. However, General Motors is 2.88 times less risky than Desert Mountain. It trades about 0.05 of its potential returns per unit of risk. Desert Mountain Energy is currently generating about -0.05 per unit of risk. If you would invest 3,757 in General Motors on August 30, 2024 and sell it today you would earn a total of 1,793 from holding General Motors or generate 47.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Desert Mountain Energy
Performance |
| Timeline |
| General Motors |
| Desert Mountain Energy |
GM and Desert Mountain Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Desert Mountain
The main advantage of trading using opposite GM and Desert Mountain positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Desert Mountain 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 Desert Mountain will offset losses from the drop in Desert Mountain's long position.The idea behind General Motors and Desert Mountain Energy 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.| Desert Mountain vs. Permian Resources | Desert Mountain vs. Devon Energy | Desert Mountain vs. EOG Resources | Desert Mountain vs. Coterra Energy |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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