Correlation Between GM and Organon
Can any of the company-specific risk be diversified away by investing in both GM and Organon 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 Organon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Organon Co, you can compare the effects of market volatilities on GM and Organon 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 Organon. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Organon.
Diversification Opportunities for GM and Organon
Excellent diversification
The 3 months correlation between GM and Organon is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Organon Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Organon 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 Organon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Organon has no effect on the direction of GM i.e., GM and Organon go up and down completely randomly.
Pair Corralation between GM and Organon
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.84 times more return on investment than Organon. However, General Motors is 1.19 times less risky than Organon. It trades about 0.05 of its potential returns per unit of risk. Organon Co is currently generating about -0.02 per unit of risk. If you would invest 3,731 in General Motors on August 27, 2024 and sell it today you would earn a total of 2,122 from holding General Motors or generate 56.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Organon Co
Performance |
| Timeline |
| General Motors |
| Organon |
GM and Organon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Organon
The main advantage of trading using opposite GM and Organon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Organon 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 Organon will offset losses from the drop in Organon's long position.The idea behind General Motors and Organon Co 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.| Organon vs. Johnson Johnson | Organon vs. Bristol Myers Squibb | Organon vs. AbbVie Inc | Organon vs. Eli Lilly and |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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