Correlation Between GM and James Alpha
Can any of the company-specific risk be diversified away by investing in both GM and James Alpha 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 James Alpha into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and James Alpha Managed, you can compare the effects of market volatilities on GM and James Alpha 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 James Alpha. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and James Alpha.
Diversification Opportunities for GM and James Alpha
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and James is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and James Alpha Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on James Alpha Managed 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 James Alpha. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of James Alpha Managed has no effect on the direction of GM i.e., GM and James Alpha go up and down completely randomly.
Pair Corralation between GM and James Alpha
Allowing for the 90-day total investment horizon General Motors is expected to generate 5.04 times more return on investment than James Alpha. However, GM is 5.04 times more volatile than James Alpha Managed. It trades about 0.13 of its potential returns per unit of risk. James Alpha Managed is currently generating about 0.15 per unit of risk. If you would invest 5,154 in General Motors on August 30, 2024 and sell it today you would earn a total of 396.00 from holding General Motors or generate 7.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. James Alpha Managed
Performance |
| Timeline |
| General Motors |
| James Alpha Managed |
GM and James Alpha Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and James Alpha
The main advantage of trading using opposite GM and James Alpha positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, James Alpha 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 James Alpha will offset losses from the drop in James Alpha's long position.The idea behind General Motors and James Alpha Managed 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.| James Alpha vs. T Rowe Price | James Alpha vs. Black Oak Emerging | James Alpha vs. T Rowe Price | James Alpha vs. Dodge Cox Emerging |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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