Correlation Between GM and Plastic Omnium
Can any of the company-specific risk be diversified away by investing in both GM and Plastic Omnium 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 Plastic Omnium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Plastic Omnium, you can compare the effects of market volatilities on GM and Plastic Omnium 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 Plastic Omnium. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Plastic Omnium.
Diversification Opportunities for GM and Plastic Omnium
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between GM and Plastic is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Plastic Omnium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plastic Omnium 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 Plastic Omnium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plastic Omnium has no effect on the direction of GM i.e., GM and Plastic Omnium go up and down completely randomly.
Pair Corralation between GM and Plastic Omnium
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.79 times more return on investment than Plastic Omnium. However, General Motors is 1.26 times less risky than Plastic Omnium. It trades about 0.07 of its potential returns per unit of risk. Plastic Omnium is currently generating about -0.04 per unit of risk. If you would invest 3,536 in General Motors on August 31, 2024 and sell it today you would earn a total of 2,023 from holding General Motors or generate 57.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.16% |
| Values | Daily Returns |
General Motors vs. Plastic Omnium
Performance |
| Timeline |
| General Motors |
| Plastic Omnium |
GM and Plastic Omnium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Plastic Omnium
The main advantage of trading using opposite GM and Plastic Omnium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Plastic Omnium 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 Plastic Omnium will offset losses from the drop in Plastic Omnium's long position.The idea behind General Motors and Plastic Omnium 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.| Plastic Omnium vs. Apple Inc | Plastic Omnium vs. Apple Inc | Plastic Omnium vs. Apple Inc | Plastic Omnium vs. Apple Inc |
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.
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