Correlation Between GM and Principal
Can any of the company-specific risk be diversified away by investing in both GM and Principal 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 Principal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Principal, you can compare the effects of market volatilities on GM and Principal 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 Principal. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Principal.
Diversification Opportunities for GM and Principal
Very poor diversification
The 3 months correlation between GM and Principal is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Principal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal 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 Principal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal has no effect on the direction of GM i.e., GM and Principal go up and down completely randomly.
Pair Corralation between GM and Principal
If you would invest 4,551 in General Motors on August 31, 2024 and sell it today you would earn a total of 1,008 from holding General Motors or generate 22.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 0.79% |
| Values | Daily Returns |
General Motors vs. Principal
Performance |
| Timeline |
| General Motors |
| Principal |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
GM and Principal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Principal
The main advantage of trading using opposite GM and Principal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Principal 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 Principal will offset losses from the drop in Principal's long position.The idea behind General Motors and Principal 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.| Principal vs. The RBB Fund | Principal vs. The RBB Fund | Principal vs. Motley Fool Next | Principal vs. Motley Fool Capital |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
Other Complementary Tools
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Portfolio Suggestion Get suggestions outside of your existing asset allocation including your own model portfolios | |
| Options Analysis Analyze and evaluate options and option chains as a potential hedge for your portfolios | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios |