Correlation Between GM and Rite Aid
Can any of the company-specific risk be diversified away by investing in both GM and Rite Aid 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 Rite Aid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Rite Aid, you can compare the effects of market volatilities on GM and Rite Aid 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 Rite Aid. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Rite Aid.
Diversification Opportunities for GM and Rite Aid
Pay attention - limited upside
The 3 months correlation between GM and Rite is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Rite Aid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rite Aid 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 Rite Aid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rite Aid has no effect on the direction of GM i.e., GM and Rite Aid go up and down completely randomly.
Pair Corralation between GM and Rite Aid
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.29 times more return on investment than Rite Aid. However, General Motors is 3.43 times less risky than Rite Aid. It trades about 0.05 of its potential returns per unit of risk. Rite Aid is currently generating about -0.04 per unit of risk. If you would invest 3,692 in General Motors on September 5, 2024 and sell it today you would earn a total of 1,674 from holding General Motors or generate 45.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 98.41% |
| Values | Daily Returns |
General Motors vs. Rite Aid
Performance |
| Timeline |
| General Motors |
| Rite Aid |
GM and Rite Aid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Rite Aid
The main advantage of trading using opposite GM and Rite Aid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Rite Aid 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 Rite Aid will offset losses from the drop in Rite Aid's long position.The idea behind General Motors and Rite Aid 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 CEOs Directory module to screen CEOs from public companies around the world.
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