Correlation Between GM and Eastern
Can any of the company-specific risk be diversified away by investing in both GM and Eastern 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 Eastern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Eastern Co, you can compare the effects of market volatilities on GM and Eastern 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 Eastern. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Eastern.
Diversification Opportunities for GM and Eastern
Excellent diversification
The 3 months correlation between GM and Eastern is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Eastern Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern 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 Eastern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern has no effect on the direction of GM i.e., GM and Eastern go up and down completely randomly.
Pair Corralation between GM and Eastern
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.07 times more return on investment than Eastern. However, GM is 1.07 times more volatile than Eastern Co. It trades about 0.13 of its potential returns per unit of risk. Eastern Co is currently generating about -0.16 per unit of risk. If you would invest 5,154 in General Motors on August 30, 2024 and sell it today you would earn a total of 396.00 from holding General Motors or generate 7.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Eastern Co
Performance |
| Timeline |
| General Motors |
| Eastern |
GM and Eastern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Eastern
The main advantage of trading using opposite GM and Eastern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Eastern 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 Eastern will offset losses from the drop in Eastern's long position.The idea behind General Motors and Eastern Co 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.| Eastern vs. Timken Company | Eastern vs. Lincoln Electric Holdings | Eastern vs. Hillman Solutions Corp | Eastern vs. AB SKF |
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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