Correlation Between GM and Heating Oil
Can any of the company-specific risk be diversified away by investing in both GM and Heating Oil 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 Heating Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Heating Oil, you can compare the effects of market volatilities on GM and Heating Oil 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 Heating Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Heating Oil.
Diversification Opportunities for GM and Heating Oil
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Heating is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Heating Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heating Oil 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 Heating Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heating Oil has no effect on the direction of GM i.e., GM and Heating Oil go up and down completely randomly.
Pair Corralation between GM and Heating Oil
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.97 times more return on investment than Heating Oil. However, GM is 1.97 times more volatile than Heating Oil. It trades about 0.17 of its potential returns per unit of risk. Heating Oil is currently generating about -0.05 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 91.3% |
| Values | Daily Returns |
General Motors vs. Heating Oil
Performance |
| Timeline |
| General Motors |
| Heating Oil |
GM and Heating Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Heating Oil
The main advantage of trading using opposite GM and Heating Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Heating Oil 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 Heating Oil will offset losses from the drop in Heating Oil's long position.The idea behind General Motors and Heating Oil 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.| Heating Oil vs. Live Cattle Futures | Heating Oil vs. Palladium | Heating Oil vs. 30 Year Treasury | Heating Oil vs. Silver Futures |
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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
Other Complementary Tools
| ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments | |
| Commodity Directory Find actively traded commodities issued by global exchanges | |
| USA ETFs Find actively traded Exchange Traded Funds (ETF) in USA | |
| Crypto Correlations Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins | |
| Money Managers Screen money managers from public funds and ETFs managed around the world |