Correlation Between GM and Moderately Servative
Can any of the company-specific risk be diversified away by investing in both GM and Moderately Servative 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 Moderately Servative into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Moderately Servative Balanced, you can compare the effects of market volatilities on GM and Moderately Servative 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 Moderately Servative. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Moderately Servative.
Diversification Opportunities for GM and Moderately Servative
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Moderately is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Moderately Servative Balanced in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moderately Servative 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 Moderately Servative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moderately Servative has no effect on the direction of GM i.e., GM and Moderately Servative go up and down completely randomly.
Pair Corralation between GM and Moderately Servative
Allowing for the 90-day total investment horizon General Motors is expected to generate 5.12 times more return on investment than Moderately Servative. However, GM is 5.12 times more volatile than Moderately Servative Balanced. It trades about 0.17 of its potential returns per unit of risk. Moderately Servative Balanced is currently generating about 0.33 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 | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. Moderately Servative Balanced
Performance |
| Timeline |
| General Motors |
| Moderately Servative |
GM and Moderately Servative Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Moderately Servative
The main advantage of trading using opposite GM and Moderately Servative positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Moderately Servative 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 Moderately Servative will offset losses from the drop in Moderately Servative's long position.The idea behind General Motors and Moderately Servative Balanced 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.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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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