Correlation Between GM and Radian
Can any of the company-specific risk be diversified away by investing in both GM and Radian 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 Radian into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Radian Group, you can compare the effects of market volatilities on GM and Radian 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 Radian. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Radian.
Diversification Opportunities for GM and Radian
Very weak diversification
The 3 months correlation between GM and Radian is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Radian Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Radian Group 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 Radian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Radian Group has no effect on the direction of GM i.e., GM and Radian go up and down completely randomly.
Pair Corralation between GM and Radian
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.23 times more return on investment than Radian. However, GM is 1.23 times more volatile than Radian Group. It trades about 0.12 of its potential returns per unit of risk. Radian Group is currently generating about 0.09 per unit of risk. If you would invest 2,815 in General Motors on September 14, 2024 and sell it today you would earn a total of 2,436 from holding General Motors or generate 86.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.18% |
| Values | Daily Returns |
General Motors vs. Radian Group
Performance |
| Timeline |
| General Motors |
| Radian Group |
GM and Radian Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Radian
The main advantage of trading using opposite GM and Radian positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Radian 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 Radian will offset losses from the drop in Radian's long position.The idea behind General Motors and Radian Group 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.| Radian vs. First American Financial | Radian vs. MGIC Investment | Radian vs. Lancashire Holdings Limited | Radian vs. Trisura Group |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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