Correlation Between GM and Smallcap Value
Can any of the company-specific risk be diversified away by investing in both GM and Smallcap Value 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 Smallcap Value into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Smallcap Value Fund, you can compare the effects of market volatilities on GM and Smallcap Value 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 Smallcap Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Smallcap Value.
Diversification Opportunities for GM and Smallcap Value
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and Smallcap is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Smallcap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Value 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 Smallcap Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Value has no effect on the direction of GM i.e., GM and Smallcap Value go up and down completely randomly.
Pair Corralation between GM and Smallcap Value
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.23 times more return on investment than Smallcap Value. However, GM is 1.23 times more volatile than Smallcap Value Fund. It trades about -0.17 of its potential returns per unit of risk. Smallcap Value Fund is currently generating about -0.27 per unit of risk. If you would invest 4,808 in General Motors on January 7, 2025 and sell it today you would lose (455.00) from holding General Motors or give up 9.46% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. Smallcap Value Fund
Performance |
| Timeline |
| General Motors |
| Smallcap Value |
GM and Smallcap Value Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Smallcap Value
The main advantage of trading using opposite GM and Smallcap Value positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Smallcap Value 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 Smallcap Value will offset losses from the drop in Smallcap Value's long position.The idea behind General Motors and Smallcap Value 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.| Smallcap Value vs. Strategic Asset Management | Smallcap Value vs. Strategic Asset Management | Smallcap Value vs. Strategic Asset Management | Smallcap Value vs. Strategic Asset Management |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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