Correlation Between GM and Rede Energia
Can any of the company-specific risk be diversified away by investing in both GM and Rede Energia 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 Rede Energia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Rede Energia Participaes, you can compare the effects of market volatilities on GM and Rede Energia 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 Rede Energia. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Rede Energia.
Diversification Opportunities for GM and Rede Energia
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Rede is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Rede Energia Participaes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rede Energia Participaes 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 Rede Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rede Energia Participaes has no effect on the direction of GM i.e., GM and Rede Energia go up and down completely randomly.
Pair Corralation between GM and Rede Energia
Allowing for the 90-day total investment horizon General Motors is expected to generate 3.02 times more return on investment than Rede Energia. However, GM is 3.02 times more volatile than Rede Energia Participaes. It trades about 0.19 of its potential returns per unit of risk. Rede Energia Participaes is currently generating about -0.07 per unit of risk. If you would invest 4,484 in General Motors on August 29, 2024 and sell it today you would earn a total of 995.00 from holding General Motors or generate 22.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.35% |
| Values | Daily Returns |
General Motors vs. Rede Energia Participaes
Performance |
| Timeline |
| General Motors |
| Rede Energia Participaes |
GM and Rede Energia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Rede Energia
The main advantage of trading using opposite GM and Rede Energia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Rede Energia 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 Rede Energia will offset losses from the drop in Rede Energia's long position.The idea behind General Motors and Rede Energia Participaes 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.| Rede Energia vs. CTEEP Companhia | Rede Energia vs. Empresa Metropolitana de | Rede Energia vs. Energisa SA | Rede Energia vs. Energisa SA |
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 Valuation module to check real value of public entities based on technical and fundamental data.
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