Correlation Between GM and Johnson Matthey
Can any of the company-specific risk be diversified away by investing in both GM and Johnson Matthey 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 Johnson Matthey into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Johnson Matthey PLC, you can compare the effects of market volatilities on GM and Johnson Matthey 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 Johnson Matthey. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Johnson Matthey.
Diversification Opportunities for GM and Johnson Matthey
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Johnson is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Johnson Matthey PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Matthey PLC 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 Johnson Matthey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Matthey PLC has no effect on the direction of GM i.e., GM and Johnson Matthey go up and down completely randomly.
Pair Corralation between GM and Johnson Matthey
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.08 times more return on investment than Johnson Matthey. However, GM is 1.08 times more volatile than Johnson Matthey PLC. It trades about 0.13 of its potential returns per unit of risk. Johnson Matthey PLC is currently generating about -0.25 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 Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Johnson Matthey PLC
Performance |
| Timeline |
| General Motors |
| Johnson Matthey PLC |
GM and Johnson Matthey Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Johnson Matthey
The main advantage of trading using opposite GM and Johnson Matthey positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Johnson Matthey 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 Johnson Matthey will offset losses from the drop in Johnson Matthey's long position.The idea behind General Motors and Johnson Matthey PLC 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.| Johnson Matthey vs. Sensient Technologies | Johnson Matthey vs. Koppers Holdings | Johnson Matthey vs. Axalta Coating Systems | Johnson Matthey vs. Select Energy Services |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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