Correlation Between GM and Leonardo SpA
Can any of the company-specific risk be diversified away by investing in both GM and Leonardo SpA 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 Leonardo SpA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Leonardo SpA ADR, you can compare the effects of market volatilities on GM and Leonardo SpA 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 Leonardo SpA. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Leonardo SpA.
Diversification Opportunities for GM and Leonardo SpA
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Leonardo is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Leonardo SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leonardo SpA ADR 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 Leonardo SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leonardo SpA ADR has no effect on the direction of GM i.e., GM and Leonardo SpA go up and down completely randomly.
Pair Corralation between GM and Leonardo SpA
Allowing for the 90-day total investment horizon GM is expected to generate 1.3 times less return on investment than Leonardo SpA. In addition to that, GM is 1.42 times more volatile than Leonardo SpA ADR. It trades about 0.12 of its total potential returns per unit of risk. Leonardo SpA ADR is currently generating about 0.22 per unit of volatility. If you would invest 1,199 in Leonardo SpA ADR on August 31, 2024 and sell it today you would earn a total of 116.00 from holding Leonardo SpA ADR or generate 9.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Leonardo SpA ADR
Performance |
| Timeline |
| General Motors |
| Leonardo SpA ADR |
GM and Leonardo SpA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Leonardo SpA
The main advantage of trading using opposite GM and Leonardo SpA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Leonardo SpA 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 Leonardo SpA will offset losses from the drop in Leonardo SpA's long position.The idea behind General Motors and Leonardo SpA ADR 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.| Leonardo SpA vs. Leonardo Spa | Leonardo SpA vs. Thales SA ADR | Leonardo SpA vs. Safran SA | Leonardo SpA vs. Rheinmetall AG ADR |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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