Correlation Between GM and Dorman Products
Can any of the company-specific risk be diversified away by investing in both GM and Dorman Products 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 Dorman Products into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Dorman Products, you can compare the effects of market volatilities on GM and Dorman Products 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 Dorman Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Dorman Products.
Diversification Opportunities for GM and Dorman Products
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Dorman is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Dorman Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dorman Products 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 Dorman Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dorman Products has no effect on the direction of GM i.e., GM and Dorman Products go up and down completely randomly.
Pair Corralation between GM and Dorman Products
Allowing for the 90-day total investment horizon GM is expected to generate 1.18 times less return on investment than Dorman Products. In addition to that, GM is 1.01 times more volatile than Dorman Products. It trades about 0.05 of its total potential returns per unit of risk. Dorman Products is currently generating about 0.06 per unit of volatility. If you would invest 8,649 in Dorman Products on August 30, 2024 and sell it today you would earn a total of 5,331 from holding Dorman Products or generate 61.64% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Dorman Products
Performance |
| Timeline |
| General Motors |
| Dorman Products |
GM and Dorman Products Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Dorman Products
The main advantage of trading using opposite GM and Dorman Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Dorman Products 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 Dorman Products will offset losses from the drop in Dorman Products' long position.The idea behind General Motors and Dorman Products 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.| Dorman Products vs. Ford Motor | Dorman Products vs. General Motors | Dorman Products vs. Goodyear Tire Rubber | Dorman Products vs. Li Auto |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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