Correlation Between GM and Telecommunications
Can any of the company-specific risk be diversified away by investing in both GM and Telecommunications 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 Telecommunications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Telecommunications Portfolio Fidelity, you can compare the effects of market volatilities on GM and Telecommunications 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 Telecommunications. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Telecommunications.
Diversification Opportunities for GM and Telecommunications
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Telecommunications is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Telecommunications Portfolio F in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecommunications 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 Telecommunications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecommunications has no effect on the direction of GM i.e., GM and Telecommunications go up and down completely randomly.
Pair Corralation between GM and Telecommunications
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.9 times more return on investment than Telecommunications. However, GM is 2.9 times more volatile than Telecommunications Portfolio Fidelity. It trades about 0.17 of its potential returns per unit of risk. Telecommunications Portfolio Fidelity is currently generating about 0.3 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Telecommunications Portfolio F
Performance |
| Timeline |
| General Motors |
| Telecommunications |
GM and Telecommunications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Telecommunications
The main advantage of trading using opposite GM and Telecommunications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Telecommunications 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 Telecommunications will offset losses from the drop in Telecommunications' long position.The idea behind General Motors and Telecommunications 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.| Telecommunications vs. Advent Claymore Convertible | Telecommunications vs. Absolute Convertible Arbitrage | Telecommunications vs. Lord Abbett Convertible | Telecommunications vs. Calamos Dynamic Convertible |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
Other Complementary Tools
| Efficient Frontier Plot and analyze your portfolio and positions against risk-return landscape of the market. | |
| Portfolio Rebalancing Analyze risk-adjusted returns against different time horizons to find asset-allocation targets | |
| Bollinger Bands Use Bollinger Bands indicator to analyze target price for a given investing horizon | |
| Portfolio Anywhere Track or share privately all of your investments from the convenience of any device | |
| Fundamental Analysis View fundamental data based on most recent published financial statements |