Correlation Between GM and Lgm Risk
Can any of the company-specific risk be diversified away by investing in both GM and Lgm Risk 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 Lgm Risk into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Lgm Risk Managed, you can compare the effects of market volatilities on GM and Lgm Risk 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 Lgm Risk. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Lgm Risk.
Diversification Opportunities for GM and Lgm Risk
Poor diversification
The 3 months correlation between GM and Lgm is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lgm Risk Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lgm Risk 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 Lgm Risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lgm Risk Managed has no effect on the direction of GM i.e., GM and Lgm Risk go up and down completely randomly.
Pair Corralation between GM and Lgm Risk
Allowing for the 90-day total investment horizon General Motors is expected to generate 5.93 times more return on investment than Lgm Risk. However, GM is 5.93 times more volatile than Lgm Risk Managed. It trades about 0.32 of its potential returns per unit of risk. Lgm Risk Managed is currently generating about 0.16 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 747.00 from holding General Motors or generate 14.17% 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. Lgm Risk Managed
Performance |
| Timeline |
| General Motors |
| Lgm Risk Managed |
GM and Lgm Risk Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Lgm Risk
The main advantage of trading using opposite GM and Lgm Risk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Lgm Risk 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 Lgm Risk will offset losses from the drop in Lgm Risk's long position.The idea behind General Motors and Lgm Risk 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.| Lgm Risk vs. Artisan High Income | Lgm Risk vs. Morningstar Aggressive Growth | Lgm Risk vs. Franklin High Income | Lgm Risk vs. Ab Global Risk |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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