Correlation Between GM and Gotham Index
Can any of the company-specific risk be diversified away by investing in both GM and Gotham Index 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 Gotham Index into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Gotham Index Plus, you can compare the effects of market volatilities on GM and Gotham Index 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 Gotham Index. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Gotham Index.
Diversification Opportunities for GM and Gotham Index
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Gotham is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Gotham Index Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gotham Index Plus 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 Gotham Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gotham Index Plus has no effect on the direction of GM i.e., GM and Gotham Index go up and down completely randomly.
Pair Corralation between GM and Gotham Index
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.51 times more return on investment than Gotham Index. However, GM is 2.51 times more volatile than Gotham Index Plus. It trades about 0.09 of its potential returns per unit of risk. Gotham Index Plus is currently generating about 0.12 per unit of risk. If you would invest 3,227 in General Motors on September 3, 2024 and sell it today you would earn a total of 2,277 from holding General Motors or generate 70.56% 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. Gotham Index Plus
Performance |
| Timeline |
| General Motors |
| Gotham Index Plus |
GM and Gotham Index Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Gotham Index
The main advantage of trading using opposite GM and Gotham Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Gotham Index 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 Gotham Index will offset losses from the drop in Gotham Index's long position.The idea behind General Motors and Gotham Index Plus 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.| Gotham Index vs. Gotham Index Plus | Gotham Index vs. Doubleline Shiller Enhanced | Gotham Index vs. Gotham Enhanced 500 | Gotham Index vs. Artisan Developing World |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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