Correlation Between GM and Public Service
Can any of the company-specific risk be diversified away by investing in both GM and Public Service 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 Public Service into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Public Service Enterprise, you can compare the effects of market volatilities on GM and Public Service 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 Public Service. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Public Service.
Diversification Opportunities for GM and Public Service
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Public is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Public Service Enterprise in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Public Service Enterprise 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 Public Service. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Public Service Enterprise has no effect on the direction of GM i.e., GM and Public Service go up and down completely randomly.
Pair Corralation between GM and Public Service
Allowing for the 90-day total investment horizon GM is expected to generate 1.13 times less return on investment than Public Service. In addition to that, GM is 1.65 times more volatile than Public Service Enterprise. It trades about 0.05 of its total potential returns per unit of risk. Public Service Enterprise is currently generating about 0.09 per unit of volatility. If you would invest 5,757 in Public Service Enterprise on August 27, 2024 and sell it today you would earn a total of 3,545 from holding Public Service Enterprise or generate 61.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Public Service Enterprise
Performance |
| Timeline |
| General Motors |
| Public Service Enterprise |
GM and Public Service Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Public Service
The main advantage of trading using opposite GM and Public Service positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Public Service 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 Public Service will offset losses from the drop in Public Service's long position.The idea behind General Motors and Public Service Enterprise 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.| Public Service vs. CenterPoint Energy | Public Service vs. FirstEnergy | Public Service vs. Pinnacle West Capital | Public Service vs. Edison International |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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