Correlation Between GM and PHX Energy
Can any of the company-specific risk be diversified away by investing in both GM and PHX Energy 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 PHX Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and PHX Energy Services, you can compare the effects of market volatilities on GM and PHX Energy 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 PHX Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and PHX Energy.
Diversification Opportunities for GM and PHX Energy
0.05 | Correlation Coefficient |
Significant diversification
The 3 months correlation between GM and PHX is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and PHX Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PHX Energy Services 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 PHX Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PHX Energy Services has no effect on the direction of GM i.e., GM and PHX Energy go up and down completely randomly.
Pair Corralation between GM and PHX Energy
Allowing for the 90-day total investment horizon GM is expected to generate 2.32 times less return on investment than PHX Energy. But when comparing it to its historical volatility, General Motors is 2.82 times less risky than PHX Energy. It trades about 0.05 of its potential returns per unit of risk. PHX Energy Services is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 474.00 in PHX Energy Services on August 25, 2024 and sell it today you would earn a total of 213.00 from holding PHX Energy Services or generate 44.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 90.54% |
| Values | Daily Returns |
General Motors vs. PHX Energy Services
Performance |
| Timeline |
| General Motors |
| PHX Energy Services |
GM and PHX Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and PHX Energy
The main advantage of trading using opposite GM and PHX Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, PHX Energy 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 PHX Energy will offset losses from the drop in PHX Energy's long position.The idea behind General Motors and PHX Energy Services 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.| PHX Energy vs. Archer Limited | PHX Energy vs. Cathedral Energy Services | PHX Energy vs. Noble plc | PHX Energy vs. Borr Drilling |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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