Correlation Between GM and California Municipal
Can any of the company-specific risk be diversified away by investing in both GM and California Municipal 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 California Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and California Municipal Fund, you can compare the effects of market volatilities on GM and California Municipal 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 California Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and California Municipal.
Diversification Opportunities for GM and California Municipal
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and California is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and California Municipal Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Municipal 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 California Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Municipal has no effect on the direction of GM i.e., GM and California Municipal go up and down completely randomly.
Pair Corralation between GM and California Municipal
Allowing for the 90-day total investment horizon General Motors is expected to generate 13.33 times more return on investment than California Municipal. However, GM is 13.33 times more volatile than California Municipal Fund. It trades about 0.1 of its potential returns per unit of risk. California Municipal Fund is currently generating about 0.06 per unit of risk. If you would invest 4,829 in General Motors on September 2, 2024 and sell it today you would earn a total of 730.00 from holding General Motors or generate 15.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. California Municipal Fund
Performance |
| Timeline |
| General Motors |
| California Municipal |
GM and California Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and California Municipal
The main advantage of trading using opposite GM and California Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, California Municipal 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 California Municipal will offset losses from the drop in California Municipal's long position.The idea behind General Motors and California Municipal Fund 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
Other Complementary Tools
| My Watchlist Analysis Analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio | |
| Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
| Top Crypto Exchanges Search and analyze digital assets across top global cryptocurrency exchanges |