Correlation Between GM and Premier
Can any of the company-specific risk be diversified away by investing in both GM and Premier 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 Premier into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Premier, you can compare the effects of market volatilities on GM and Premier 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 Premier. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Premier.
Diversification Opportunities for GM and Premier
Very poor diversification
The 3 months correlation between GM and Premier is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Premier in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premier 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 Premier. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premier has no effect on the direction of GM i.e., GM and Premier go up and down completely randomly.
Pair Corralation between GM and Premier
Allowing for the 90-day total investment horizon GM is expected to generate 1.85 times less return on investment than Premier. But when comparing it to its historical volatility, General Motors is 1.09 times less risky than Premier. It trades about 0.12 of its potential returns per unit of risk. Premier is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest 2,009 in Premier on August 31, 2024 and sell it today you would earn a total of 281.00 from holding Premier or generate 13.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Premier
Performance |
| Timeline |
| General Motors |
| Premier |
GM and Premier Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Premier
The main advantage of trading using opposite GM and Premier positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Premier 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 Premier will offset losses from the drop in Premier's long position.The idea behind General Motors and Premier 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.| Premier vs. National Research Corp | Premier vs. Definitive Healthcare Corp | Premier vs. HealthStream | Premier vs. Privia Health Group |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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