Correlation Between GM and Midcap Sp
Can any of the company-specific risk be diversified away by investing in both GM and Midcap Sp 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 Midcap Sp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Midcap Sp 400, you can compare the effects of market volatilities on GM and Midcap Sp 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 Midcap Sp. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Midcap Sp.
Diversification Opportunities for GM and Midcap Sp
Very poor diversification
The 3 months correlation between GM and Midcap is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Midcap Sp 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Sp 400 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 Midcap Sp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Sp 400 has no effect on the direction of GM i.e., GM and Midcap Sp go up and down completely randomly.
Pair Corralation between GM and Midcap Sp
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.41 times more return on investment than Midcap Sp. However, GM is 2.41 times more volatile than Midcap Sp 400. It trades about 0.17 of its potential returns per unit of risk. Midcap Sp 400 is currently generating about 0.33 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. Midcap Sp 400
Performance |
| Timeline |
| General Motors |
| Midcap Sp 400 |
GM and Midcap Sp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Midcap Sp
The main advantage of trading using opposite GM and Midcap Sp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Midcap Sp 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 Midcap Sp will offset losses from the drop in Midcap Sp's long position.The idea behind General Motors and Midcap Sp 400 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.| Midcap Sp vs. T Rowe Price | Midcap Sp vs. Jhancock Disciplined Value | Midcap Sp vs. Transamerica Large Cap | Midcap Sp vs. Qs Large Cap |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
Other Complementary Tools
| Idea Breakdown Analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Fundamental Analysis View fundamental data based on most recent published financial statements | |
| Money Managers Screen money managers from public funds and ETFs managed around the world | |
| Money Flow Index Determine momentum by analyzing Money Flow Index and other technical indicators |