Correlation Between GM and Mesa Laboratories
Can any of the company-specific risk be diversified away by investing in both GM and Mesa Laboratories 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 Mesa Laboratories into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Mesa Laboratories, you can compare the effects of market volatilities on GM and Mesa Laboratories 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 Mesa Laboratories. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Mesa Laboratories.
Diversification Opportunities for GM and Mesa Laboratories
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Mesa is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Mesa Laboratories in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesa Laboratories 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 Mesa Laboratories. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesa Laboratories has no effect on the direction of GM i.e., GM and Mesa Laboratories go up and down completely randomly.
Pair Corralation between GM and Mesa Laboratories
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.55 times more return on investment than Mesa Laboratories. However, General Motors is 1.82 times less risky than Mesa Laboratories. It trades about 0.11 of its potential returns per unit of risk. Mesa Laboratories is currently generating about -0.01 per unit of risk. If you would invest 4,287 in General Motors on August 24, 2024 and sell it today you would earn a total of 1,281 from holding General Motors or generate 29.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
General Motors vs. Mesa Laboratories
Performance |
| Timeline |
| General Motors |
| Mesa Laboratories |
GM and Mesa Laboratories Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Mesa Laboratories
The main advantage of trading using opposite GM and Mesa Laboratories positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Mesa Laboratories 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 Mesa Laboratories will offset losses from the drop in Mesa Laboratories' long position.The idea behind General Motors and Mesa Laboratories 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.| Mesa Laboratories vs. Novanta | Mesa Laboratories vs. Itron Inc | Mesa Laboratories vs. Fortive Corp | Mesa Laboratories vs. Vishay Precision Group |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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