Correlation Between GM and Essex Property
Can any of the company-specific risk be diversified away by investing in both GM and Essex Property 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 Essex Property into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Essex Property Trust, you can compare the effects of market volatilities on GM and Essex Property 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 Essex Property. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Essex Property.
Diversification Opportunities for GM and Essex Property
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Essex is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Essex Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essex Property Trust 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 Essex Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essex Property Trust has no effect on the direction of GM i.e., GM and Essex Property go up and down completely randomly.
Pair Corralation between GM and Essex Property
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.39 times more return on investment than Essex Property. However, GM is 1.39 times more volatile than Essex Property Trust. It trades about 0.06 of its potential returns per unit of risk. Essex Property Trust is currently generating about 0.07 per unit of risk. If you would invest 3,726 in General Motors on August 28, 2024 and sell it today you would earn a total of 2,294 from holding General Motors or generate 61.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Essex Property Trust
Performance |
| Timeline |
| General Motors |
| Essex Property Trust |
GM and Essex Property Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Essex Property
The main advantage of trading using opposite GM and Essex Property positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Essex Property 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 Essex Property will offset losses from the drop in Essex Property's long position.The idea behind General Motors and Essex Property Trust 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.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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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