Correlation Between GM and Essent
Can any of the company-specific risk be diversified away by investing in both GM and Essent 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 Essent into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Essent Group, you can compare the effects of market volatilities on GM and Essent 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 Essent. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Essent.
Diversification Opportunities for GM and Essent
Good diversification
The 3 months correlation between GM and Essent is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Essent Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essent Group 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 Essent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essent Group has no effect on the direction of GM i.e., GM and Essent go up and down completely randomly.
Pair Corralation between GM and Essent
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.51 times more return on investment than Essent. However, GM is 1.51 times more volatile than Essent Group. It trades about 0.03 of its potential returns per unit of risk. Essent Group is currently generating about 0.05 per unit of risk. If you would invest 3,440 in General Motors on January 6, 2025 and sell it today you would earn a total of 978.00 from holding General Motors or generate 28.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Essent Group
Performance |
| Timeline |
| General Motors |
| Essent Group |
GM and Essent Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Essent
The main advantage of trading using opposite GM and Essent positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Essent 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 Essent will offset losses from the drop in Essent's long position.The idea behind General Motors and Essent Group 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.| Essent vs. NMI Holdings | Essent vs. MBIA Inc | Essent vs. James River Group | Essent vs. Ambac Financial Group |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
Other Complementary Tools
| Portfolio Comparator Compare the composition, asset allocations and performance of any two portfolios in your account | |
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| Instant Ratings Determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Financial Widgets Easily integrated Macroaxis content with over 30 different plug-and-play financial widgets | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments |