Correlation Between GM and AEye
Can any of the company-specific risk be diversified away by investing in both GM and AEye 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 AEye into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and AEye Inc, you can compare the effects of market volatilities on GM and AEye 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 AEye. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and AEye.
Diversification Opportunities for GM and AEye
Very weak diversification
The 3 months correlation between GM and AEye is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and AEye Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEye Inc 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 AEye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEye Inc has no effect on the direction of GM i.e., GM and AEye go up and down completely randomly.
Pair Corralation between GM and AEye
Allowing for the 90-day total investment horizon GM is expected to generate 31.58 times less return on investment than AEye. But when comparing it to its historical volatility, General Motors is 14.25 times less risky than AEye. It trades about 0.05 of its potential returns per unit of risk. AEye Inc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 11.00 in AEye Inc on August 29, 2024 and sell it today you would lose (9.50) from holding AEye Inc or give up 86.36% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. AEye Inc
Performance |
| Timeline |
| General Motors |
| AEye Inc |
GM and AEye Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and AEye
The main advantage of trading using opposite GM and AEye positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, AEye 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 AEye will offset losses from the drop in AEye's long position.The idea behind General Motors and AEye Inc 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.| AEye vs. Faraday Future Intelligent | AEye vs. Innoviz Technologies | AEye vs. Aeye Inc | AEye vs. Xos Equity Warrants |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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