Correlation Between GM and Safran SA
Can any of the company-specific risk be diversified away by investing in both GM and Safran SA 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 Safran SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Safran SA, you can compare the effects of market volatilities on GM and Safran SA 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 Safran SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Safran SA.
Diversification Opportunities for GM and Safran SA
Poor diversification
The 3 months correlation between GM and Safran is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Safran SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safran SA 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 Safran SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safran SA has no effect on the direction of GM i.e., GM and Safran SA go up and down completely randomly.
Pair Corralation between GM and Safran SA
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.95 times more return on investment than Safran SA. However, GM is 1.95 times more volatile than Safran SA. It trades about 0.07 of its potential returns per unit of risk. Safran SA is currently generating about 0.09 per unit of risk. If you would invest 5,273 in General Motors on August 29, 2024 and sell it today you would earn a total of 206.00 from holding General Motors or generate 3.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Safran SA
Performance |
| Timeline |
| General Motors |
| Safran SA |
GM and Safran SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Safran SA
The main advantage of trading using opposite GM and Safran SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Safran SA 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 Safran SA will offset losses from the drop in Safran SA's long position.The idea behind General Motors and Safran SA 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.| Safran SA vs. DXC Technology Co | Safran SA vs. FANDIFI TECHNOLOGY P | Safran SA vs. DOCDATA | Safran SA vs. Datang International Power |
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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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