Correlation Between GM and Charles Schwab
Can any of the company-specific risk be diversified away by investing in both GM and Charles Schwab 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 Charles Schwab into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Charles Schwab Corp, you can compare the effects of market volatilities on GM and Charles Schwab 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 Charles Schwab. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Charles Schwab.
Diversification Opportunities for GM and Charles Schwab
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between GM and Charles is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Charles Schwab Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charles Schwab Corp 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 Charles Schwab. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charles Schwab Corp has no effect on the direction of GM i.e., GM and Charles Schwab go up and down completely randomly.
Pair Corralation between GM and Charles Schwab
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.15 times more return on investment than Charles Schwab. However, GM is 1.15 times more volatile than Charles Schwab Corp. It trades about 0.15 of its potential returns per unit of risk. Charles Schwab Corp is currently generating about 0.1 per unit of risk. If you would invest 2,858 in General Motors on August 24, 2024 and sell it today you would earn a total of 2,990 from holding General Motors or generate 104.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Charles Schwab Corp
Performance |
| Timeline |
| General Motors |
| Charles Schwab Corp |
GM and Charles Schwab Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Charles Schwab
The main advantage of trading using opposite GM and Charles Schwab positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Charles Schwab 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 Charles Schwab will offset losses from the drop in Charles Schwab's long position.The idea behind General Motors and Charles Schwab Corp 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.| Charles Schwab vs. Goldman Sachs Group | Charles Schwab vs. Riot Blockchain | Charles Schwab vs. Jefferies Financial Group | Charles Schwab vs. Marathon Digital Holdings |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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