Correlation Between GM and Old Westbury
Can any of the company-specific risk be diversified away by investing in both GM and Old Westbury 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 Old Westbury into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Old Westbury New, you can compare the effects of market volatilities on GM and Old Westbury 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 Old Westbury. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Old Westbury.
Diversification Opportunities for GM and Old Westbury
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Old is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Old Westbury New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Old Westbury New 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 Old Westbury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Old Westbury New has no effect on the direction of GM i.e., GM and Old Westbury go up and down completely randomly.
Pair Corralation between GM and Old Westbury
Allowing for the 90-day total investment horizon General Motors is expected to generate 13.18 times more return on investment than Old Westbury. However, GM is 13.18 times more volatile than Old Westbury New. It trades about 0.07 of its potential returns per unit of risk. Old Westbury New is currently generating about 0.04 per unit of risk. If you would invest 3,503 in General Motors on November 9, 2024 and sell it today you would earn a total of 1,290 from holding General Motors or generate 36.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 87.64% |
| Values | Daily Returns |
General Motors vs. Old Westbury New
Performance |
| Timeline |
| General Motors |
| Old Westbury New |
Risk-Adjusted Performance
Good
Weak | Strong |
GM and Old Westbury Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Old Westbury
The main advantage of trading using opposite GM and Old Westbury positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Old Westbury 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 Old Westbury will offset losses from the drop in Old Westbury's long position.The idea behind General Motors and Old Westbury New 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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