Correlation Between GM and Simt Mid
Can any of the company-specific risk be diversified away by investing in both GM and Simt Mid 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 Simt Mid into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Simt Mid Cap, you can compare the effects of market volatilities on GM and Simt Mid 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 Simt Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Simt Mid.
Diversification Opportunities for GM and Simt Mid
Very poor diversification
The 3 months correlation between GM and Simt is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Simt Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simt Mid Cap 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 Simt Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simt Mid Cap has no effect on the direction of GM i.e., GM and Simt Mid go up and down completely randomly.
Pair Corralation between GM and Simt Mid
Allowing for the 90-day total investment horizon General Motors is expected to generate 3.08 times more return on investment than Simt Mid. However, GM is 3.08 times more volatile than Simt Mid Cap. It trades about 0.17 of its potential returns per unit of risk. Simt Mid Cap is currently generating about 0.4 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. Simt Mid Cap
Performance |
| Timeline |
| General Motors |
| Simt Mid Cap |
GM and Simt Mid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Simt Mid
The main advantage of trading using opposite GM and Simt Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Simt Mid 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 Simt Mid will offset losses from the drop in Simt Mid's long position.The idea behind General Motors and Simt Mid Cap 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.| Simt Mid vs. Simt Large Cap | Simt Mid vs. Simt Small Cap | Simt Mid vs. Simt Large Cap | Simt Mid vs. Simt Small Cap |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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