Correlation Between GM and Equity Residential
Can any of the company-specific risk be diversified away by investing in both GM and Equity Residential 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 Equity Residential into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Equity Residential, you can compare the effects of market volatilities on GM and Equity Residential 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 Equity Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Equity Residential.
Diversification Opportunities for GM and Equity Residential
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Equity is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Equity Residential in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Residential 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 Equity Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Residential has no effect on the direction of GM i.e., GM and Equity Residential go up and down completely randomly.
Pair Corralation between GM and Equity Residential
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Equity Residential. In addition to that, GM is 2.06 times more volatile than Equity Residential. It trades about -0.23 of its total potential returns per unit of risk. Equity Residential is currently generating about -0.22 per unit of volatility. If you would invest 7,250 in Equity Residential on September 23, 2024 and sell it today you would lose (400.00) from holding Equity Residential or give up 5.52% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. Equity Residential
Performance |
| Timeline |
| General Motors |
| Equity Residential |
GM and Equity Residential Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Equity Residential
The main advantage of trading using opposite GM and Equity Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Equity Residential 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 Equity Residential will offset losses from the drop in Equity Residential's long position.The idea behind General Motors and Equity Residential 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.| Equity Residential vs. AvalonBay Communities | Equity Residential vs. UDR Inc | Equity Residential vs. INVITATION HOMES DL | Equity Residential vs. Mid America Apartment Communities |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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