Correlation Between GM and Paz Oil
Can any of the company-specific risk be diversified away by investing in both GM and Paz Oil 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 Paz Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Paz Oil, you can compare the effects of market volatilities on GM and Paz Oil 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 Paz Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Paz Oil.
Diversification Opportunities for GM and Paz Oil
Very poor diversification
The 3 months correlation between GM and Paz is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Paz Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paz Oil 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 Paz Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paz Oil has no effect on the direction of GM i.e., GM and Paz Oil go up and down completely randomly.
Pair Corralation between GM and Paz Oil
Allowing for the 90-day total investment horizon GM is expected to generate 1.59 times less return on investment than Paz Oil. In addition to that, GM is 1.23 times more volatile than Paz Oil. It trades about 0.08 of its total potential returns per unit of risk. Paz Oil is currently generating about 0.16 per unit of volatility. If you would invest 3,292,627 in Paz Oil on September 2, 2024 and sell it today you would earn a total of 1,047,373 from holding Paz Oil or generate 31.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 75.4% |
| Values | Daily Returns |
General Motors vs. Paz Oil
Performance |
| Timeline |
| General Motors |
| Paz Oil |
GM and Paz Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Paz Oil
The main advantage of trading using opposite GM and Paz Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Paz Oil 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 Paz Oil will offset losses from the drop in Paz Oil's long position.The idea behind General Motors and Paz Oil 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.| Paz Oil vs. Fattal 1998 Holdings | Paz Oil vs. El Al Israel | Paz Oil vs. Bank Leumi Le Israel | Paz Oil vs. Teva Pharmaceutical Industries |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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