Correlation Between GM and EasyJet PLC
Can any of the company-specific risk be diversified away by investing in both GM and EasyJet PLC 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 EasyJet PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and EasyJet PLC, you can compare the effects of market volatilities on GM and EasyJet PLC 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 EasyJet PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and EasyJet PLC.
Diversification Opportunities for GM and EasyJet PLC
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and EasyJet is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and EasyJet PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EasyJet PLC 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 EasyJet PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EasyJet PLC has no effect on the direction of GM i.e., GM and EasyJet PLC go up and down completely randomly.
Pair Corralation between GM and EasyJet PLC
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.71 times more return on investment than EasyJet PLC. However, GM is 1.71 times more volatile than EasyJet PLC. It trades about -0.05 of its potential returns per unit of risk. EasyJet PLC is currently generating about -0.5 per unit of risk. If you would invest 5,204 in General Motors on October 12, 2024 and sell it today you would lose (104.00) from holding General Motors or give up 2.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. EasyJet PLC
Performance |
| Timeline |
| General Motors |
| EasyJet PLC |
GM and EasyJet PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and EasyJet PLC
The main advantage of trading using opposite GM and EasyJet PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, EasyJet PLC 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 EasyJet PLC will offset losses from the drop in EasyJet PLC's long position.The idea behind General Motors and EasyJet PLC 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.| EasyJet PLC vs. Cornish Metals | EasyJet PLC vs. Applied Materials | EasyJet PLC vs. Travel Leisure Co | EasyJet PLC vs. Capital Metals PLC |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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