Correlation Between GM and SMA Solar
Can any of the company-specific risk be diversified away by investing in both GM and SMA Solar 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 SMA Solar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and SMA Solar Technology, you can compare the effects of market volatilities on GM and SMA Solar 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 SMA Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and SMA Solar.
Diversification Opportunities for GM and SMA Solar
Pay attention - limited upside
The 3 months correlation between GM and SMA is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and SMA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA Solar Technology 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 SMA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA Solar Technology has no effect on the direction of GM i.e., GM and SMA Solar go up and down completely randomly.
Pair Corralation between GM and SMA Solar
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.54 times more return on investment than SMA Solar. However, General Motors is 1.85 times less risky than SMA Solar. It trades about 0.13 of its potential returns per unit of risk. SMA Solar Technology is currently generating about -0.11 per unit of risk. If you would invest 2,879 in General Motors on September 1, 2024 and sell it today you would earn a total of 2,680 from holding General Motors or generate 93.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 98.18% |
| Values | Daily Returns |
General Motors vs. SMA Solar Technology
Performance |
| Timeline |
| General Motors |
| SMA Solar Technology |
GM and SMA Solar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and SMA Solar
The main advantage of trading using opposite GM and SMA Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, SMA Solar 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 SMA Solar will offset losses from the drop in SMA Solar's long position.The idea behind General Motors and SMA Solar Technology 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.| SMA Solar vs. Xinyi Solar Holdings | SMA Solar vs. Superior Plus Corp | SMA Solar vs. NMI Holdings | SMA Solar vs. Origin Agritech |
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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