Correlation Between GM and Hennessy Large
Can any of the company-specific risk be diversified away by investing in both GM and Hennessy Large 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 Hennessy Large into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Hennessy Large Cap, you can compare the effects of market volatilities on GM and Hennessy Large 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 Hennessy Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Hennessy Large.
Diversification Opportunities for GM and Hennessy Large
0.93 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between GM and Hennessy is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Hennessy Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hennessy Large Cap 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 Hennessy Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hennessy Large Cap has no effect on the direction of GM i.e., GM and Hennessy Large go up and down completely randomly.
Pair Corralation between GM and Hennessy Large
Allowing for the 90-day total investment horizon GM is expected to generate 1.0 times less return on investment than Hennessy Large. But when comparing it to its historical volatility, General Motors is 1.33 times less risky than Hennessy Large. It trades about 0.32 of its potential returns per unit of risk. Hennessy Large Cap is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 2,825 in Hennessy Large Cap on August 28, 2024 and sell it today you would earn a total of 393.00 from holding Hennessy Large Cap or generate 13.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Hennessy Large Cap
Performance |
| Timeline |
| General Motors |
| Hennessy Large Cap |
GM and Hennessy Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Hennessy Large
The main advantage of trading using opposite GM and Hennessy Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Hennessy Large 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 Hennessy Large will offset losses from the drop in Hennessy Large's long position.The idea behind General Motors and Hennessy Large Cap 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.| Hennessy Large vs. Hennessy Large Cap | Hennessy Large vs. Dow 2x Strategy | Hennessy Large vs. Dow 2x Strategy | Hennessy Large vs. T Rowe Price |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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