Correlation Between GM and Government Street
Can any of the company-specific risk be diversified away by investing in both GM and Government Street 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 Government Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Government Street Equity, you can compare the effects of market volatilities on GM and Government Street 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 Government Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Government Street.
Diversification Opportunities for GM and Government Street
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Government is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Government Street Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Government Street Equity 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 Government Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Government Street Equity has no effect on the direction of GM i.e., GM and Government Street go up and down completely randomly.
Pair Corralation between GM and Government Street
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Government Street. In addition to that, GM is 1.94 times more volatile than Government Street Equity. It trades about -0.08 of its total potential returns per unit of risk. Government Street Equity is currently generating about 0.08 per unit of volatility. If you would invest 12,837 in Government Street Equity on October 22, 2024 and sell it today you would earn a total of 168.00 from holding Government Street Equity or generate 1.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 94.74% |
| Values | Daily Returns |
General Motors vs. Government Street Equity
Performance |
| Timeline |
| General Motors |
| Government Street Equity |
GM and Government Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Government Street
The main advantage of trading using opposite GM and Government Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Government Street 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 Government Street will offset losses from the drop in Government Street's long position.The idea behind General Motors and Government Street Equity 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.| Government Street vs. Arrow Managed Futures | Government Street vs. Fpddjx | Government Street vs. Wmcapx | Government Street vs. Fwnhtx |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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