Correlation Between GM and Packaging
Can any of the company-specific risk be diversified away by investing in both GM and Packaging 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 Packaging into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Packaging of, you can compare the effects of market volatilities on GM and Packaging 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 Packaging. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Packaging.
Diversification Opportunities for GM and Packaging
Very poor diversification
The 3 months correlation between GM and Packaging is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Packaging of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Packaging 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 Packaging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Packaging has no effect on the direction of GM i.e., GM and Packaging go up and down completely randomly.
Pair Corralation between GM and Packaging
Allowing for the 90-day total investment horizon GM is expected to generate 1.97 times less return on investment than Packaging. In addition to that, GM is 1.97 times more volatile than Packaging of. It trades about 0.08 of its total potential returns per unit of risk. Packaging of is currently generating about 0.3 per unit of volatility. If you would invest 18,387 in Packaging of on August 29, 2024 and sell it today you would earn a total of 5,093 from holding Packaging of or generate 27.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.46% |
| Values | Daily Returns |
General Motors vs. Packaging of
Performance |
| Timeline |
| General Motors |
| Packaging |
GM and Packaging Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Packaging
The main advantage of trading using opposite GM and Packaging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Packaging 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 Packaging will offset losses from the drop in Packaging's long position.The idea behind General Motors and Packaging of 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.| Packaging vs. Host Hotels Resorts | Packaging vs. MIRAMAR HOTEL INV | Packaging vs. COVIVIO HOTELS INH | Packaging vs. InterContinental Hotels 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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