Correlation Between GM and Regional Health
Can any of the company-specific risk be diversified away by investing in both GM and Regional Health 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 Regional Health into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Regional Health Properties, you can compare the effects of market volatilities on GM and Regional Health 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 Regional Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Regional Health.
Diversification Opportunities for GM and Regional Health
-0.62 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Regional is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Regional Health Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regional Health Prop 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 Regional Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regional Health Prop has no effect on the direction of GM i.e., GM and Regional Health go up and down completely randomly.
Pair Corralation between GM and Regional Health
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.36 times more return on investment than Regional Health. However, General Motors is 2.74 times less risky than Regional Health. It trades about 0.17 of its potential returns per unit of risk. Regional Health Properties is currently generating about 0.04 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Regional Health Properties
Performance |
| Timeline |
| General Motors |
| Regional Health Prop |
GM and Regional Health Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Regional Health
The main advantage of trading using opposite GM and Regional Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Regional Health 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 Regional Health will offset losses from the drop in Regional Health's long position.The idea behind General Motors and Regional Health Properties 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.| Regional Health vs. Ramsay Health Care | Regional Health vs. Jack Nathan Medical | Regional Health vs. Nova Leap Health | Regional Health vs. Fresenius SE Co |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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