Correlation Between GM and MilDef Group
Can any of the company-specific risk be diversified away by investing in both GM and MilDef Group 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 MilDef Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and MilDef Group AB, you can compare the effects of market volatilities on GM and MilDef Group 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 MilDef Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and MilDef Group.
Diversification Opportunities for GM and MilDef Group
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and MilDef is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and MilDef Group AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MilDef Group AB 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 MilDef Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MilDef Group AB has no effect on the direction of GM i.e., GM and MilDef Group go up and down completely randomly.
Pair Corralation between GM and MilDef Group
Allowing for the 90-day total investment horizon GM is expected to generate 2.32 times less return on investment than MilDef Group. But when comparing it to its historical volatility, General Motors is 1.26 times less risky than MilDef Group. It trades about 0.08 of its potential returns per unit of risk. MilDef Group AB is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 6,990 in MilDef Group AB on September 2, 2024 and sell it today you would earn a total of 4,810 from holding MilDef Group AB or generate 68.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.44% |
| Values | Daily Returns |
General Motors vs. MilDef Group AB
Performance |
| Timeline |
| General Motors |
| MilDef Group AB |
GM and MilDef Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and MilDef Group
The main advantage of trading using opposite GM and MilDef Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, MilDef Group 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 MilDef Group will offset losses from the drop in MilDef Group's long position.The idea behind General Motors and MilDef Group AB 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.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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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