Correlation Between GM and Capital World
Can any of the company-specific risk be diversified away by investing in both GM and Capital World 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 Capital World into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Capital World Growth, you can compare the effects of market volatilities on GM and Capital World 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 Capital World. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Capital World.
Diversification Opportunities for GM and Capital World
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Capital is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Capital World Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital World Growth 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 Capital World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital World Growth has no effect on the direction of GM i.e., GM and Capital World go up and down completely randomly.
Pair Corralation between GM and Capital World
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.74 times more return on investment than Capital World. However, GM is 2.74 times more volatile than Capital World Growth. It trades about 0.05 of its potential returns per unit of risk. Capital World Growth is currently generating about 0.08 per unit of risk. If you would invest 3,807 in General Motors on August 24, 2024 and sell it today you would earn a total of 2,046 from holding General Motors or generate 53.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Capital World Growth
Performance |
| Timeline |
| General Motors |
| Capital World Growth |
GM and Capital World Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Capital World
The main advantage of trading using opposite GM and Capital World positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Capital World 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 Capital World will offset losses from the drop in Capital World's long position.The idea behind General Motors and Capital World 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.| Capital World vs. Commonwealth Real Estate | Capital World vs. Gamco Global Opportunity | Capital World vs. Buffalo Growth Fund | Capital World vs. HUMANA INC |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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