Correlation Between GM and Poplar Forest
Can any of the company-specific risk be diversified away by investing in both GM and Poplar Forest 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 Poplar Forest into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Poplar Forest Partners, you can compare the effects of market volatilities on GM and Poplar Forest 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 Poplar Forest. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Poplar Forest.
Diversification Opportunities for GM and Poplar Forest
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Poplar is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Poplar Forest Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Poplar Forest Partners 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 Poplar Forest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Poplar Forest Partners has no effect on the direction of GM i.e., GM and Poplar Forest go up and down completely randomly.
Pair Corralation between GM and Poplar Forest
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.75 times more return on investment than Poplar Forest. However, GM is 2.75 times more volatile than Poplar Forest Partners. It trades about 0.11 of its potential returns per unit of risk. Poplar Forest Partners is currently generating about 0.05 per unit of risk. If you would invest 4,077 in General Motors on August 27, 2024 and sell it today you would earn a total of 1,776 from holding General Motors or generate 43.56% 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. Poplar Forest Partners
Performance |
| Timeline |
| General Motors |
| Poplar Forest Partners |
GM and Poplar Forest Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Poplar Forest
The main advantage of trading using opposite GM and Poplar Forest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Poplar Forest 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 Poplar Forest will offset losses from the drop in Poplar Forest's long position.The idea behind General Motors and Poplar Forest Partners 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.| Poplar Forest vs. Poplar Forest Partners | Poplar Forest vs. Amg Gwk Small | Poplar Forest vs. Columbia Select Large Cap | Poplar Forest 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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