Correlation Between GM and Consumer Finance
Can any of the company-specific risk be diversified away by investing in both GM and Consumer Finance 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 Consumer Finance into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Consumer Finance Portfolio, you can compare the effects of market volatilities on GM and Consumer Finance 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 Consumer Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Consumer Finance.
Diversification Opportunities for GM and Consumer Finance
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Consumer is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Consumer Finance Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Finance Por 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 Consumer Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Finance Por has no effect on the direction of GM i.e., GM and Consumer Finance go up and down completely randomly.
Pair Corralation between GM and Consumer Finance
Allowing for the 90-day total investment horizon GM is expected to generate 1.27 times less return on investment than Consumer Finance. In addition to that, GM is 1.93 times more volatile than Consumer Finance Portfolio. It trades about 0.13 of its total potential returns per unit of risk. Consumer Finance Portfolio is currently generating about 0.33 per unit of volatility. If you would invest 1,808 in Consumer Finance Portfolio on August 30, 2024 and sell it today you would earn a total of 195.00 from holding Consumer Finance Portfolio or generate 10.79% 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. Consumer Finance Portfolio
Performance |
| Timeline |
| General Motors |
| Consumer Finance Por |
GM and Consumer Finance Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Consumer Finance
The main advantage of trading using opposite GM and Consumer Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Consumer Finance 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 Consumer Finance will offset losses from the drop in Consumer Finance's long position.The idea behind General Motors and Consumer Finance Portfolio 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.| Consumer Finance vs. HUMANA INC | Consumer Finance vs. Aquagold International | Consumer Finance vs. Barloworld Ltd ADR | Consumer Finance vs. Morningstar Unconstrained Allocation |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
Other Complementary Tools
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Portfolio Dashboard Portfolio dashboard that provides centralized access to all your investments | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| Balance Of Power Check stock momentum by analyzing Balance Of Power indicator and other technical ratios |