Correlation Between GM and Snap On
Can any of the company-specific risk be diversified away by investing in both GM and Snap On 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 Snap On into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Snap On, you can compare the effects of market volatilities on GM and Snap On 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 Snap On. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Snap On.
Diversification Opportunities for GM and Snap On
Almost no diversification
The 3 months correlation between GM and Snap is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Snap On in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snap On 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 Snap On. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snap On has no effect on the direction of GM i.e., GM and Snap On go up and down completely randomly.
Pair Corralation between GM and Snap On
Allowing for the 90-day total investment horizon GM is expected to generate 1.02 times less return on investment than Snap On. In addition to that, GM is 1.37 times more volatile than Snap On. It trades about 0.05 of its total potential returns per unit of risk. Snap On is currently generating about 0.07 per unit of volatility. If you would invest 24,436 in Snap On on August 27, 2024 and sell it today you would earn a total of 12,628 from holding Snap On or generate 51.68% 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. Snap On
Performance |
| Timeline |
| General Motors |
| Snap On |
GM and Snap On Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Snap On
The main advantage of trading using opposite GM and Snap On positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Snap On 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 Snap On will offset losses from the drop in Snap On's long position.The idea behind General Motors and Snap On 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.| Snap On vs. Lincoln Electric Holdings | Snap On vs. Timken Company | Snap On vs. Kennametal | Snap On vs. Toro 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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