Correlation Between GM and Optimum Large
Can any of the company-specific risk be diversified away by investing in both GM and Optimum Large 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 Optimum Large into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Optimum Large Cap, you can compare the effects of market volatilities on GM and Optimum Large 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 Optimum Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Optimum Large.
Diversification Opportunities for GM and Optimum Large
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Optimum is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Optimum Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Optimum Large Cap 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 Optimum Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Optimum Large Cap has no effect on the direction of GM i.e., GM and Optimum Large go up and down completely randomly.
Pair Corralation between GM and Optimum Large
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.73 times more return on investment than Optimum Large. However, GM is 2.73 times more volatile than Optimum Large Cap. It trades about 0.19 of its potential returns per unit of risk. Optimum Large Cap is currently generating about 0.14 per unit of risk. If you would invest 4,484 in General Motors on August 29, 2024 and sell it today you would earn a total of 995.00 from holding General Motors or generate 22.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Optimum Large Cap
Performance |
| Timeline |
| General Motors |
| Optimum Large Cap |
GM and Optimum Large Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Optimum Large
The main advantage of trading using opposite GM and Optimum Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Optimum Large 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 Optimum Large will offset losses from the drop in Optimum Large's long position.The idea behind General Motors and Optimum Large Cap 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.| Optimum Large vs. Nasdaq 100 Index Fund | Optimum Large vs. Artisan Thematic Fund | Optimum Large vs. Jp Morgan Smartretirement | Optimum Large vs. Nova Fund Class |
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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