Correlation Between GM and Perkins Select
Can any of the company-specific risk be diversified away by investing in both GM and Perkins Select 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 Perkins Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Perkins Select Value, you can compare the effects of market volatilities on GM and Perkins Select 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 Perkins Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Perkins Select.
Diversification Opportunities for GM and Perkins Select
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Perkins is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Perkins Select Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perkins Select Value 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 Perkins Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perkins Select Value has no effect on the direction of GM i.e., GM and Perkins Select go up and down completely randomly.
Pair Corralation between GM and Perkins Select
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.33 times more return on investment than Perkins Select. However, GM is 2.33 times more volatile than Perkins Select Value. It trades about 0.1 of its potential returns per unit of risk. Perkins Select Value is currently generating about 0.13 per unit of risk. If you would invest 4,829 in General Motors on August 31, 2024 and sell it today you would earn a total of 721.00 from holding General Motors or generate 14.93% 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. Perkins Select Value
Performance |
| Timeline |
| General Motors |
| Perkins Select Value |
GM and Perkins Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Perkins Select
The main advantage of trading using opposite GM and Perkins Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Perkins Select 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 Perkins Select will offset losses from the drop in Perkins Select's long position.The idea behind General Motors and Perkins Select Value 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.| Perkins Select vs. Mesirow Financial Small | Perkins Select vs. 1919 Financial Services | Perkins Select vs. Transamerica Financial Life | Perkins Select vs. Fidelity Advisor Financial |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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