Correlation Between GM and World Oil
Can any of the company-specific risk be diversified away by investing in both GM and World Oil 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 World Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and World Oil Group, you can compare the effects of market volatilities on GM and World Oil 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 World Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and World Oil.
Diversification Opportunities for GM and World Oil
Poor diversification
The 3 months correlation between GM and World is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and World Oil Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Oil Group 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 World Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Oil Group has no effect on the direction of GM i.e., GM and World Oil go up and down completely randomly.
Pair Corralation between GM and World Oil
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.25 times more return on investment than World Oil. However, General Motors is 4.01 times less risky than World Oil. It trades about -0.34 of its potential returns per unit of risk. World Oil Group is currently generating about -0.16 per unit of risk. If you would invest 5,492 in General Motors on November 27, 2024 and sell it today you would lose (835.00) from holding General Motors or give up 15.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. World Oil Group
Performance |
| Timeline |
| General Motors |
| World Oil Group |
GM and World Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and World Oil
The main advantage of trading using opposite GM and World Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, World Oil 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 World Oil will offset losses from the drop in World Oil's long position.The idea behind General Motors and World Oil Group 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.| World Oil vs. NanoTech Gaming | World Oil vs. Games Workshop Group | World Oil vs. ChampionX | World Oil vs. Emerson Electric |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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