Correlation Between GM and Sierra Tactical
Can any of the company-specific risk be diversified away by investing in both GM and Sierra Tactical 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 Sierra Tactical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Sierra Tactical Municipal, you can compare the effects of market volatilities on GM and Sierra Tactical 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 Sierra Tactical. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Sierra Tactical.
Diversification Opportunities for GM and Sierra Tactical
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Sierra is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Sierra Tactical Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sierra Tactical 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 Sierra Tactical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sierra Tactical Municipal has no effect on the direction of GM i.e., GM and Sierra Tactical go up and down completely randomly.
Pair Corralation between GM and Sierra Tactical
Allowing for the 90-day total investment horizon General Motors is expected to generate 9.5 times more return on investment than Sierra Tactical. However, GM is 9.5 times more volatile than Sierra Tactical Municipal. It trades about 0.05 of its potential returns per unit of risk. Sierra Tactical Municipal is currently generating about 0.05 per unit of risk. If you would invest 3,805 in General Motors on September 3, 2024 and sell it today you would earn a total of 1,754 from holding General Motors or generate 46.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Sierra Tactical Municipal
Performance |
| Timeline |
| General Motors |
| Sierra Tactical Municipal |
GM and Sierra Tactical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Sierra Tactical
The main advantage of trading using opposite GM and Sierra Tactical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Sierra Tactical 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 Sierra Tactical will offset losses from the drop in Sierra Tactical's long position.The idea behind General Motors and Sierra Tactical Municipal 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.| Sierra Tactical vs. Columbia Global Technology | Sierra Tactical vs. Science Technology Fund | Sierra Tactical vs. Dreyfus Technology Growth | Sierra Tactical vs. Blackrock Science Technology |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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