Correlation Between GM and Software Circle
Can any of the company-specific risk be diversified away by investing in both GM and Software Circle 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 Software Circle into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Software Circle plc, you can compare the effects of market volatilities on GM and Software Circle 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 Software Circle. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Software Circle.
Diversification Opportunities for GM and Software Circle
-0.36 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and Software is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Software Circle plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Software Circle plc 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 Software Circle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Software Circle plc has no effect on the direction of GM i.e., GM and Software Circle go up and down completely randomly.
Pair Corralation between GM and Software Circle
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Software Circle. In addition to that, GM is 2.78 times more volatile than Software Circle plc. It trades about -0.06 of its total potential returns per unit of risk. Software Circle plc is currently generating about 0.2 per unit of volatility. If you would invest 2,340 in Software Circle plc on November 4, 2024 and sell it today you would earn a total of 110.00 from holding Software Circle plc or generate 4.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 90.91% |
| Values | Daily Returns |
General Motors vs. Software Circle plc
Performance |
| Timeline |
| General Motors |
| Software Circle plc |
GM and Software Circle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Software Circle
The main advantage of trading using opposite GM and Software Circle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Software Circle 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 Software Circle will offset losses from the drop in Software Circle's long position.The idea behind General Motors and Software Circle plc 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.| Software Circle vs. Indutrade AB | Software Circle vs. Litigation Capital Management | Software Circle vs. Vietnam Enterprise Investments | Software Circle vs. Lowland Investment Co |
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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