Correlation Between GM and EPAM Systems
Can any of the company-specific risk be diversified away by investing in both GM and EPAM Systems 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 EPAM Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and EPAM Systems, you can compare the effects of market volatilities on GM and EPAM Systems 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 EPAM Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and EPAM Systems.
Diversification Opportunities for GM and EPAM Systems
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and EPAM is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and EPAM Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EPAM Systems 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 EPAM Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EPAM Systems has no effect on the direction of GM i.e., GM and EPAM Systems go up and down completely randomly.
Pair Corralation between GM and EPAM Systems
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the EPAM Systems. In addition to that, GM is 1.97 times more volatile than EPAM Systems. It trades about -0.1 of its total potential returns per unit of risk. EPAM Systems is currently generating about 0.24 per unit of volatility. If you would invest 23,382 in EPAM Systems on November 1, 2024 and sell it today you would earn a total of 1,806 from holding EPAM Systems or generate 7.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.0% |
| Values | Daily Returns |
General Motors vs. EPAM Systems
Performance |
| Timeline |
| General Motors |
| EPAM Systems |
GM and EPAM Systems Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and EPAM Systems
The main advantage of trading using opposite GM and EPAM Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, EPAM Systems 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 EPAM Systems will offset losses from the drop in EPAM Systems' long position.The idea behind General Motors and EPAM Systems 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.| EPAM Systems vs. Concentrix | EPAM Systems vs. Gartner | EPAM Systems vs. Accenture plc | EPAM Systems vs. International Business Machines |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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