Correlation Between GM and Oak Ridge
Can any of the company-specific risk be diversified away by investing in both GM and Oak Ridge 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 Oak Ridge into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Oak Ridge Small, you can compare the effects of market volatilities on GM and Oak Ridge 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 Oak Ridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Oak Ridge.
Diversification Opportunities for GM and Oak Ridge
Very poor diversification
The 3 months correlation between GM and OAK is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Oak Ridge Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oak Ridge Small 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 Oak Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oak Ridge Small has no effect on the direction of GM i.e., GM and Oak Ridge go up and down completely randomly.
Pair Corralation between GM and Oak Ridge
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.98 times more return on investment than Oak Ridge. However, General Motors is 1.02 times less risky than Oak Ridge. It trades about 0.05 of its potential returns per unit of risk. Oak Ridge Small is currently generating about 0.01 per unit of risk. If you would invest 3,807 in General Motors on August 24, 2024 and sell it today you would earn a total of 2,046 from holding General Motors or generate 53.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Oak Ridge Small
Performance |
| Timeline |
| General Motors |
| Oak Ridge Small |
GM and Oak Ridge Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Oak Ridge
The main advantage of trading using opposite GM and Oak Ridge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Oak Ridge 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 Oak Ridge will offset losses from the drop in Oak Ridge's long position.The idea behind General Motors and Oak Ridge Small 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.| Oak Ridge vs. Blackrock Moderate Prepared | Oak Ridge vs. Saat Moderate Strategy | Oak Ridge vs. Wisdomtree Siegel Moderate | Oak Ridge vs. Calvert Moderate Allocation |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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