Correlation Between GM and American Green
Can any of the company-specific risk be diversified away by investing in both GM and American Green 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 American Green into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and American Green, you can compare the effects of market volatilities on GM and American Green 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 American Green. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and American Green.
Diversification Opportunities for GM and American Green
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and American is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and American Green in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Green 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 American Green. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Green has no effect on the direction of GM i.e., GM and American Green go up and down completely randomly.
Pair Corralation between GM and American Green
Allowing for the 90-day total investment horizon GM is expected to generate 15.17 times less return on investment than American Green. But when comparing it to its historical volatility, General Motors is 13.57 times less risky than American Green. It trades about 0.07 of its potential returns per unit of risk. American Green is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 0.09 in American Green on August 31, 2024 and sell it today you would lose (0.03) from holding American Green or give up 33.33% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. American Green
Performance |
| Timeline |
| General Motors |
| American Green |
GM and American Green Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and American Green
The main advantage of trading using opposite GM and American Green positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, American Green 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 American Green will offset losses from the drop in American Green's long position.The idea behind General Motors and American Green 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.| American Green vs. Holloman Energy Corp | American Green vs. cbdMD Inc | American Green vs. Evolus Inc | American Green vs. CV Sciences |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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