Correlation Between GM and Gentex
Can any of the company-specific risk be diversified away by investing in both GM and Gentex 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 Gentex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Gentex, you can compare the effects of market volatilities on GM and Gentex 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 Gentex. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Gentex.
Diversification Opportunities for GM and Gentex
Very weak diversification
The 3 months correlation between GM and Gentex is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Gentex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gentex 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 Gentex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gentex has no effect on the direction of GM i.e., GM and Gentex go up and down completely randomly.
Pair Corralation between GM and Gentex
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.61 times more return on investment than Gentex. However, GM is 1.61 times more volatile than Gentex. It trades about 0.08 of its potential returns per unit of risk. Gentex is currently generating about -0.07 per unit of risk. If you would invest 4,551 in General Motors on August 30, 2024 and sell it today you would earn a total of 999.00 from holding General Motors or generate 21.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Gentex
Performance |
| Timeline |
| General Motors |
| Gentex |
GM and Gentex Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Gentex
The main advantage of trading using opposite GM and Gentex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Gentex 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 Gentex will offset losses from the drop in Gentex's long position.The idea behind General Motors and Gentex 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.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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
Other Complementary Tools
| Idea Analyzer Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas | |
| Stock Screener Find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook. | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum | |
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes |