Correlation Between GM and International Flavors
Can any of the company-specific risk be diversified away by investing in both GM and International Flavors 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 International Flavors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and International Flavors Fragrances, you can compare the effects of market volatilities on GM and International Flavors 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 International Flavors. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and International Flavors.
Diversification Opportunities for GM and International Flavors
-0.81 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between GM and International is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and International Flavors Fragranc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Flavors 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 International Flavors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Flavors has no effect on the direction of GM i.e., GM and International Flavors go up and down completely randomly.
Pair Corralation between GM and International Flavors
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.66 times more return on investment than International Flavors. However, General Motors is 1.51 times less risky than International Flavors. It trades about 0.26 of its potential returns per unit of risk. International Flavors Fragrances is currently generating about -0.17 per unit of risk. If you would invest 5,273 in General Motors on August 27, 2024 and sell it today you would earn a total of 580.00 from holding General Motors or generate 11.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. International Flavors Fragranc
Performance |
| Timeline |
| General Motors |
| International Flavors |
GM and International Flavors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and International Flavors
The main advantage of trading using opposite GM and International Flavors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, International Flavors 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 International Flavors will offset losses from the drop in International Flavors' long position.The idea behind General Motors and International Flavors Fragrances 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.| International Flavors vs. LyondellBasell Industries NV | International Flavors vs. Cabot | International Flavors vs. Westlake Chemical | International Flavors vs. Air Products and |
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.
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