Correlation Between GM and Newbury Street
Can any of the company-specific risk be diversified away by investing in both GM and Newbury Street 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 Newbury Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Newbury Street Acquisition, you can compare the effects of market volatilities on GM and Newbury Street 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 Newbury Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Newbury Street.
Diversification Opportunities for GM and Newbury Street
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Newbury is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Newbury Street Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newbury Street Acqui 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 Newbury Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newbury Street Acqui has no effect on the direction of GM i.e., GM and Newbury Street go up and down completely randomly.
Pair Corralation between GM and Newbury Street
Allowing for the 90-day total investment horizon GM is expected to generate 147.96 times less return on investment than Newbury Street. But when comparing it to its historical volatility, General Motors is 55.18 times less risky than Newbury Street. It trades about 0.05 of its potential returns per unit of risk. Newbury Street Acquisition is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 4.00 in Newbury Street Acquisition on August 30, 2024 and sell it today you would earn a total of 5.00 from holding Newbury Street Acquisition or generate 125.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 63.23% |
| Values | Daily Returns |
General Motors vs. Newbury Street Acquisition
Performance |
| Timeline |
| General Motors |
| Newbury Street Acqui |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Strong
GM and Newbury Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Newbury Street
The main advantage of trading using opposite GM and Newbury Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Newbury Street 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 Newbury Street will offset losses from the drop in Newbury Street's long position.The idea behind General Motors and Newbury Street Acquisition 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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