Correlation Between GM and Gafisa SA
Can any of the company-specific risk be diversified away by investing in both GM and Gafisa SA 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 Gafisa SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Gafisa SA, you can compare the effects of market volatilities on GM and Gafisa SA 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 Gafisa SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Gafisa SA.
Diversification Opportunities for GM and Gafisa SA
Pay attention - limited upside
The 3 months correlation between GM and Gafisa is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Gafisa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gafisa SA 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 Gafisa SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gafisa SA has no effect on the direction of GM i.e., GM and Gafisa SA go up and down completely randomly.
Pair Corralation between GM and Gafisa SA
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.29 times more return on investment than Gafisa SA. However, General Motors is 3.42 times less risky than Gafisa SA. It trades about 0.05 of its potential returns per unit of risk. Gafisa SA is currently generating about -0.01 per unit of risk. If you would invest 3,757 in General Motors on August 30, 2024 and sell it today you would earn a total of 1,793 from holding General Motors or generate 47.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.2% |
| Values | Daily Returns |
General Motors vs. Gafisa SA
Performance |
| Timeline |
| General Motors |
| Gafisa SA |
GM and Gafisa SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Gafisa SA
The main advantage of trading using opposite GM and Gafisa SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Gafisa SA 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 Gafisa SA will offset losses from the drop in Gafisa SA's long position.The idea behind General Motors and Gafisa SA 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.| Gafisa SA vs. Cyrela Brazil Realty | Gafisa SA vs. Rossi Residencial SA | Gafisa SA vs. MRV Engenharia e | Gafisa SA vs. PDG Realty SA |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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