Correlation Between GM and Salesforce
Can any of the company-specific risk be diversified away by investing in both GM and Salesforce 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 Salesforce into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Salesforce, you can compare the effects of market volatilities on GM and Salesforce 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 Salesforce. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Salesforce.
Diversification Opportunities for GM and Salesforce
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Salesforce is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of GM i.e., GM and Salesforce go up and down completely randomly.
Pair Corralation between GM and Salesforce
Allowing for the 90-day total investment horizon GM is expected to generate 1.64 times less return on investment than Salesforce. In addition to that, GM is 1.22 times more volatile than Salesforce. It trades about 0.15 of its total potential returns per unit of risk. Salesforce is currently generating about 0.31 per unit of volatility. If you would invest 24,635 in Salesforce on August 28, 2024 and sell it today you would earn a total of 8,090 from holding Salesforce or generate 32.84% 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. Salesforce
Performance |
| Timeline |
| General Motors |
| Salesforce |
GM and Salesforce Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Salesforce
The main advantage of trading using opposite GM and Salesforce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Salesforce 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 Salesforce will offset losses from the drop in Salesforce's long position.The idea behind General Motors and Salesforce 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.| Salesforce vs. Microsoft | Salesforce vs. NVIDIA | Salesforce vs. Superior Plus Corp | Salesforce vs. NMI Holdings |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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