Correlation Between GM and Element Solutions
Can any of the company-specific risk be diversified away by investing in both GM and Element Solutions 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 Element Solutions into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Element Solutions, you can compare the effects of market volatilities on GM and Element Solutions 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 Element Solutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Element Solutions.
Diversification Opportunities for GM and Element Solutions
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Element is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Element Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Element Solutions 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 Element Solutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Element Solutions has no effect on the direction of GM i.e., GM and Element Solutions go up and down completely randomly.
Pair Corralation between GM and Element Solutions
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Element Solutions. In addition to that, GM is 1.69 times more volatile than Element Solutions. It trades about -0.31 of its total potential returns per unit of risk. Element Solutions is currently generating about -0.41 per unit of volatility. If you would invest 2,752 in Element Solutions on September 25, 2024 and sell it today you would lose (312.00) from holding Element Solutions or give up 11.34% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.24% |
| Values | Daily Returns |
General Motors vs. Element Solutions
Performance |
| Timeline |
| General Motors |
| Element Solutions |
GM and Element Solutions Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Element Solutions
The main advantage of trading using opposite GM and Element Solutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Element Solutions 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 Element Solutions will offset losses from the drop in Element Solutions' long position.The idea behind General Motors and Element Solutions 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.| Element Solutions vs. JD SPORTS FASH | Element Solutions vs. PLAYTIKA HOLDING DL 01 | Element Solutions vs. Live Nation Entertainment | Element Solutions vs. Ubisoft Entertainment SA |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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