Correlation Between GM and Kensington Dynamic
Can any of the company-specific risk be diversified away by investing in both GM and Kensington Dynamic 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 Kensington Dynamic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Kensington Dynamic Growth, you can compare the effects of market volatilities on GM and Kensington Dynamic 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 Kensington Dynamic. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Kensington Dynamic.
Diversification Opportunities for GM and Kensington Dynamic
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Kensington is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Kensington Dynamic Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kensington Dynamic Growth 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 Kensington Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kensington Dynamic Growth has no effect on the direction of GM i.e., GM and Kensington Dynamic go up and down completely randomly.
Pair Corralation between GM and Kensington Dynamic
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.68 times more return on investment than Kensington Dynamic. However, GM is 2.68 times more volatile than Kensington Dynamic Growth. It trades about 0.06 of its potential returns per unit of risk. Kensington Dynamic Growth is currently generating about 0.04 per unit of risk. If you would invest 3,673 in General Motors on September 12, 2024 and sell it today you would earn a total of 1,601 from holding General Motors or generate 43.59% 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. Kensington Dynamic Growth
Performance |
| Timeline |
| General Motors |
| Kensington Dynamic Growth |
GM and Kensington Dynamic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Kensington Dynamic
The main advantage of trading using opposite GM and Kensington Dynamic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Kensington Dynamic 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 Kensington Dynamic will offset losses from the drop in Kensington Dynamic's long position.The idea behind General Motors and Kensington Dynamic Growth 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.| Kensington Dynamic vs. Needham Aggressive Growth | Kensington Dynamic vs. Qs Defensive Growth | Kensington Dynamic vs. T Rowe Price | Kensington Dynamic vs. Champlain Mid Cap |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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