Correlation Between GM and Mastermind
Can any of the company-specific risk be diversified away by investing in both GM and Mastermind 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 Mastermind into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Mastermind, you can compare the effects of market volatilities on GM and Mastermind 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 Mastermind. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Mastermind.
Diversification Opportunities for GM and Mastermind
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and Mastermind is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Mastermind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastermind 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 Mastermind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastermind has no effect on the direction of GM i.e., GM and Mastermind go up and down completely randomly.
Pair Corralation between GM and Mastermind
Allowing for the 90-day total investment horizon GM is expected to generate 3.86 times less return on investment than Mastermind. But when comparing it to its historical volatility, General Motors is 7.29 times less risky than Mastermind. It trades about 0.11 of its potential returns per unit of risk. Mastermind is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 8.00 in Mastermind on September 3, 2024 and sell it today you would lose (3.00) from holding Mastermind or give up 37.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Mastermind
Performance |
| Timeline |
| General Motors |
| Mastermind |
GM and Mastermind Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Mastermind
The main advantage of trading using opposite GM and Mastermind positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Mastermind 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 Mastermind will offset losses from the drop in Mastermind's long position.The idea behind General Motors and Mastermind 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.| Mastermind vs. Mobivity Holdings | Mastermind vs. Legacy Education Alliance | Mastermind vs. TSS, Common Stock | Mastermind vs. Uniroyal Global Engineered |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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