Correlation Between GM and Materials Portfolio
Can any of the company-specific risk be diversified away by investing in both GM and Materials Portfolio 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 Materials Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Materials Portfolio Fidelity, you can compare the effects of market volatilities on GM and Materials Portfolio 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 Materials Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Materials Portfolio.
Diversification Opportunities for GM and Materials Portfolio
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and Materials is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Materials Portfolio Fidelity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Materials Portfolio 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 Materials Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Materials Portfolio has no effect on the direction of GM i.e., GM and Materials Portfolio go up and down completely randomly.
Pair Corralation between GM and Materials Portfolio
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Materials Portfolio. In addition to that, GM is 3.87 times more volatile than Materials Portfolio Fidelity. It trades about -0.13 of its total potential returns per unit of risk. Materials Portfolio Fidelity is currently generating about 0.36 per unit of volatility. If you would invest 7,922 in Materials Portfolio Fidelity on November 5, 2024 and sell it today you would earn a total of 418.00 from holding Materials Portfolio Fidelity or generate 5.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Materials Portfolio Fidelity
Performance |
| Timeline |
| General Motors |
| Materials Portfolio |
GM and Materials Portfolio Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Materials Portfolio
The main advantage of trading using opposite GM and Materials Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Materials Portfolio 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 Materials Portfolio will offset losses from the drop in Materials Portfolio's long position.The idea behind General Motors and Materials Portfolio Fidelity 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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