Correlation Between GM and HealthCare
Can any of the company-specific risk be diversified away by investing in both GM and HealthCare 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 HealthCare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and HealthCare, you can compare the effects of market volatilities on GM and HealthCare 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 HealthCare. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and HealthCare.
Diversification Opportunities for GM and HealthCare
-0.18 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and HealthCare is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and HealthCare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HealthCare 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 HealthCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HealthCare has no effect on the direction of GM i.e., GM and HealthCare go up and down completely randomly.
Pair Corralation between GM and HealthCare
Allowing for the 90-day total investment horizon GM is expected to generate 40.13 times less return on investment than HealthCare. But when comparing it to its historical volatility, General Motors is 18.63 times less risky than HealthCare. It trades about 0.05 of its potential returns per unit of risk. HealthCare is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 985.00 in HealthCare on November 8, 2024 and sell it today you would lose (146.00) from holding HealthCare or give up 14.82% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 50.61% |
| Values | Daily Returns |
General Motors vs. HealthCare
Performance |
| Timeline |
| General Motors |
| HealthCare |
GM and HealthCare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and HealthCare
The main advantage of trading using opposite GM and HealthCare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, HealthCare 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 HealthCare will offset losses from the drop in HealthCare's long position.The idea behind General Motors and HealthCare 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.| HealthCare vs. Harmony Gold Mining | HealthCare vs. FactSet Research Systems | HealthCare vs. Highway Holdings Limited | HealthCare vs. Pinterest |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
Other Complementary Tools
| Price Exposure Probability Analyze equity upside and downside potential for a given time horizon across multiple markets | |
| Equity Analysis Research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities | |
| Volatility Analysis Get historical volatility and risk analysis based on latest market data | |
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| Technical Analysis Check basic technical indicators and analysis based on most latest market data |