Correlation Between GM and Lynas Rare
Can any of the company-specific risk be diversified away by investing in both GM and Lynas Rare 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 Lynas Rare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Lynas Rare Earths, you can compare the effects of market volatilities on GM and Lynas Rare 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 Lynas Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Lynas Rare.
Diversification Opportunities for GM and Lynas Rare
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and Lynas is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lynas Rare Earths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lynas Rare Earths 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 Lynas Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lynas Rare Earths has no effect on the direction of GM i.e., GM and Lynas Rare go up and down completely randomly.
Pair Corralation between GM and Lynas Rare
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.87 times more return on investment than Lynas Rare. However, General Motors is 1.15 times less risky than Lynas Rare. It trades about 0.05 of its potential returns per unit of risk. Lynas Rare Earths is currently generating about -0.01 per unit of risk. If you would invest 3,757 in General Motors on August 30, 2024 and sell it today you would earn a total of 1,793 from holding General Motors or generate 47.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Lynas Rare Earths
Performance |
| Timeline |
| General Motors |
| Lynas Rare Earths |
GM and Lynas Rare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Lynas Rare
The main advantage of trading using opposite GM and Lynas Rare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Lynas Rare 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 Lynas Rare will offset losses from the drop in Lynas Rare's long position.The idea behind General Motors and Lynas Rare Earths 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.| Lynas Rare vs. Arafura Resources | Lynas Rare vs. Texas Rare Earth | Lynas Rare vs. Ucore Rare Metals | Lynas Rare vs. Lynas Rare Earths |
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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.
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