Correlation Between GM and Payden Absolute
Can any of the company-specific risk be diversified away by investing in both GM and Payden Absolute 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 Payden Absolute into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Payden Absolute Return, you can compare the effects of market volatilities on GM and Payden Absolute 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 Payden Absolute. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Payden Absolute.
Diversification Opportunities for GM and Payden Absolute
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Payden is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Payden Absolute Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Payden Absolute Return 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 Payden Absolute. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Payden Absolute Return has no effect on the direction of GM i.e., GM and Payden Absolute go up and down completely randomly.
Pair Corralation between GM and Payden Absolute
Allowing for the 90-day total investment horizon General Motors is expected to generate 14.2 times more return on investment than Payden Absolute. However, GM is 14.2 times more volatile than Payden Absolute Return. It trades about 0.13 of its potential returns per unit of risk. Payden Absolute Return is currently generating about -0.1 per unit of risk. If you would invest 5,154 in General Motors on August 30, 2024 and sell it today you would earn a total of 396.00 from holding General Motors or generate 7.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Payden Absolute Return
Performance |
| Timeline |
| General Motors |
| Payden Absolute Return |
GM and Payden Absolute Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Payden Absolute
The main advantage of trading using opposite GM and Payden Absolute positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Payden Absolute 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 Payden Absolute will offset losses from the drop in Payden Absolute's long position.The idea behind General Motors and Payden Absolute Return 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.| Payden Absolute vs. Baird Smallmid Cap | Payden Absolute vs. Artisan Small Cap | Payden Absolute vs. Small Pany Growth | Payden Absolute vs. Fisher Small 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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