Correlation Between GM and State Street
Can any of the company-specific risk be diversified away by investing in both GM and State Street 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 State Street into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and State Street Target, you can compare the effects of market volatilities on GM and State Street 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 State Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and State Street.
Diversification Opportunities for GM and State Street
-0.07 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and State is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and State Street Target in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street Target 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street Target has no effect on the direction of GM i.e., GM and State Street go up and down completely randomly.
Pair Corralation between GM and State Street
Allowing for the 90-day total investment horizon General Motors is expected to generate 7.55 times more return on investment than State Street. However, GM is 7.55 times more volatile than State Street Target. It trades about 0.08 of its potential returns per unit of risk. State Street Target is currently generating about 0.16 per unit of risk. If you would invest 4,551 in General Motors on September 1, 2024 and sell it today you would earn a total of 1,008 from holding General Motors or generate 22.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
General Motors vs. State Street Target
Performance |
| Timeline |
| General Motors |
| State Street Target |
GM and State Street Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and State Street
The main advantage of trading using opposite GM and State Street positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, State Street 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 State Street will offset losses from the drop in State Street's long position.The idea behind General Motors and State Street Target 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.| State Street vs. Precious Metals And | State Street vs. Invesco Gold Special | State Street vs. Short Precious Metals | State Street vs. Europac Gold Fund |
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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