Correlation Between GM and Partner
Can any of the company-specific risk be diversified away by investing in both GM and Partner 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 Partner into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Partner, you can compare the effects of market volatilities on GM and Partner 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 Partner. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Partner.
Diversification Opportunities for GM and Partner
Poor diversification
The 3 months correlation between GM and Partner is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Partner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Partner 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 Partner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Partner has no effect on the direction of GM i.e., GM and Partner go up and down completely randomly.
Pair Corralation between GM and Partner
Allowing for the 90-day total investment horizon GM is expected to generate 1.18 times less return on investment than Partner. But when comparing it to its historical volatility, General Motors is 1.33 times less risky than Partner. It trades about 0.07 of its potential returns per unit of risk. Partner is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 146,500 in Partner on August 31, 2024 and sell it today you would earn a total of 68,000 from holding Partner or generate 46.42% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 77.81% |
| Values | Daily Returns |
General Motors vs. Partner
Performance |
| Timeline |
| General Motors |
| Partner |
GM and Partner Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Partner
The main advantage of trading using opposite GM and Partner positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Partner 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 Partner will offset losses from the drop in Partner's long position.The idea behind General Motors and Partner 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.| Partner vs. Israel China Biotechnology | Partner vs. The Gold Bond | Partner vs. Overseas Commerce | Partner vs. Big Tech 50 |
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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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