Correlation Between GM and Pacific Ridge
Can any of the company-specific risk be diversified away by investing in both GM and Pacific 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 Pacific 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 Pacific Ridge Exploration, you can compare the effects of market volatilities on GM and Pacific 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 Pacific Ridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Pacific Ridge.
Diversification Opportunities for GM and Pacific Ridge
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Pacific is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Pacific Ridge Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Ridge Exploration 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 Pacific Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Ridge Exploration has no effect on the direction of GM i.e., GM and Pacific Ridge go up and down completely randomly.
Pair Corralation between GM and Pacific Ridge
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Pacific Ridge. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.45 times less risky than Pacific Ridge. The stock trades about -0.1 of its potential returns per unit of risk. The Pacific Ridge Exploration is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 14.00 in Pacific Ridge Exploration on January 5, 2025 and sell it today you would earn a total of 0.00 from holding Pacific Ridge Exploration or generate 0.0% 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. Pacific Ridge Exploration
Performance |
| Timeline |
| General Motors |
| Pacific Ridge Exploration |
GM and Pacific Ridge Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Pacific Ridge
The main advantage of trading using opposite GM and Pacific Ridge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Pacific 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 Pacific Ridge will offset losses from the drop in Pacific Ridge's long position.The idea behind General Motors and Pacific Ridge Exploration 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.| Pacific Ridge vs. Commander Resources | Pacific Ridge vs. Galantas Gold Corp | Pacific Ridge vs. Grande Portage Resources | Pacific Ridge vs. Wescan Goldfields |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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