Correlation Between GM and Century Aluminum
Can any of the company-specific risk be diversified away by investing in both GM and Century Aluminum 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 Century Aluminum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Century Aluminum, you can compare the effects of market volatilities on GM and Century Aluminum 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 Century Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Century Aluminum.
Diversification Opportunities for GM and Century Aluminum
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Century is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum 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 Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of GM i.e., GM and Century Aluminum go up and down completely randomly.
Pair Corralation between GM and Century Aluminum
Allowing for the 90-day total investment horizon GM is expected to generate 2.94 times less return on investment than Century Aluminum. But when comparing it to its historical volatility, General Motors is 1.92 times less risky than Century Aluminum. It trades about 0.05 of its potential returns per unit of risk. Century Aluminum is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 757.00 in Century Aluminum on September 3, 2024 and sell it today you would earn a total of 1,419 from holding Century Aluminum or generate 187.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.02% |
| Values | Daily Returns |
General Motors vs. Century Aluminum
Performance |
| Timeline |
| General Motors |
| Century Aluminum |
GM and Century Aluminum Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Century Aluminum
The main advantage of trading using opposite GM and Century Aluminum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Century Aluminum 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 Century Aluminum will offset losses from the drop in Century Aluminum's long position.The idea behind General Motors and Century Aluminum 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.| Century Aluminum vs. PKSHA TECHNOLOGY INC | Century Aluminum vs. Ribbon Communications | Century Aluminum vs. Verizon Communications | Century Aluminum vs. Align Technology |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
Other Complementary Tools
| FinTech Suite Use AI to screen and filter profitable investment opportunities | |
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities |