Correlation Between GM and GSR II
Can any of the company-specific risk be diversified away by investing in both GM and GSR II 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 GSR II into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and GSR II Meteora, you can compare the effects of market volatilities on GM and GSR II 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 GSR II. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and GSR II.
Diversification Opportunities for GM and GSR II
Very poor diversification
The 3 months correlation between GM and GSR is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and GSR II Meteora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSR II Meteora 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 GSR II. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSR II Meteora has no effect on the direction of GM i.e., GM and GSR II go up and down completely randomly.
Pair Corralation between GM and GSR II
If you would invest 5,207 in General Motors on August 26, 2024 and sell it today you would earn a total of 646.00 from holding General Motors or generate 12.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 4.55% |
| Values | Daily Returns |
General Motors vs. GSR II Meteora
Performance |
| Timeline |
| General Motors |
| GSR II Meteora |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
GM and GSR II Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and GSR II
The main advantage of trading using opposite GM and GSR II positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, GSR II 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 GSR II will offset losses from the drop in GSR II's long position.The idea behind General Motors and GSR II Meteora 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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