Correlation Between GM and Royce Smaller-companie
Can any of the company-specific risk be diversified away by investing in both GM and Royce Smaller-companie 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 Royce Smaller-companie into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Royce Smaller Companies Growth, you can compare the effects of market volatilities on GM and Royce Smaller-companie 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 Royce Smaller-companie. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Royce Smaller-companie.
Diversification Opportunities for GM and Royce Smaller-companie
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Royce is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Royce Smaller Companies Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royce Smaller Companies 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 Royce Smaller-companie. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royce Smaller Companies has no effect on the direction of GM i.e., GM and Royce Smaller-companie go up and down completely randomly.
Pair Corralation between GM and Royce Smaller-companie
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.46 times more return on investment than Royce Smaller-companie. However, GM is 1.46 times more volatile than Royce Smaller Companies Growth. It trades about 0.05 of its potential returns per unit of risk. Royce Smaller Companies Growth is currently generating about 0.07 per unit of risk. If you would invest 3,757 in General Motors on August 30, 2024 and sell it today you would earn a total of 1,793 from holding General Motors or generate 47.72% 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. Royce Smaller Companies Growth
Performance |
| Timeline |
| General Motors |
| Royce Smaller Companies |
GM and Royce Smaller-companie Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Royce Smaller-companie
The main advantage of trading using opposite GM and Royce Smaller-companie positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Royce Smaller-companie 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 Royce Smaller-companie will offset losses from the drop in Royce Smaller-companie's long position.The idea behind General Motors and Royce Smaller Companies Growth 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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