Correlation Between GM and Equity Income
Can any of the company-specific risk be diversified away by investing in both GM and Equity Income 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 Equity Income into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Equity Income Fund, you can compare the effects of market volatilities on GM and Equity Income 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 Equity Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Equity Income.
Diversification Opportunities for GM and Equity Income
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Equity is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of GM i.e., GM and Equity Income go up and down completely randomly.
Pair Corralation between GM and Equity Income
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.93 times more return on investment than Equity Income. However, GM is 2.93 times more volatile than Equity Income Fund. It trades about 0.09 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.13 per unit of risk. If you would invest 3,227 in General Motors on September 3, 2024 and sell it today you would earn a total of 2,277 from holding General Motors or generate 70.56% 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. Equity Income Fund
Performance |
| Timeline |
| General Motors |
| Equity Income |
GM and Equity Income Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Equity Income
The main advantage of trading using opposite GM and Equity Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Equity Income 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 Equity Income will offset losses from the drop in Equity Income's long position.The idea behind General Motors and Equity Income Fund 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.| Equity Income vs. Champlain Mid Cap | Equity Income vs. Franklin Growth Opportunities | Equity Income vs. Pace Smallmedium Growth | Equity Income vs. T Rowe Price |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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