Correlation Between GM and D Wave
Can any of the company-specific risk be diversified away by investing in both GM and D Wave 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 D Wave into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and D Wave Quantum, you can compare the effects of market volatilities on GM and D Wave 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 D Wave. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and D Wave.
Diversification Opportunities for GM and D Wave
Very poor diversification
The 3 months correlation between GM and QBTS is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and D Wave Quantum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on D Wave Quantum 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 D Wave. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of D Wave Quantum has no effect on the direction of GM i.e., GM and D Wave go up and down completely randomly.
Pair Corralation between GM and D Wave
Allowing for the 90-day total investment horizon GM is expected to generate 5.8 times less return on investment than D Wave. But when comparing it to its historical volatility, General Motors is 4.98 times less risky than D Wave. It trades about 0.05 of its potential returns per unit of risk. D Wave Quantum is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 136.00 in D Wave Quantum on August 27, 2024 and sell it today you would earn a total of 157.00 from holding D Wave Quantum or generate 115.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. D Wave Quantum
Performance |
| Timeline |
| General Motors |
| D Wave Quantum |
GM and D Wave Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and D Wave
The main advantage of trading using opposite GM and D Wave positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, D Wave 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 D Wave will offset losses from the drop in D Wave's long position.The idea behind General Motors and D Wave Quantum 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.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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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