Correlation Between GM and Schwab Us
Can any of the company-specific risk be diversified away by investing in both GM and Schwab Us 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 Schwab Us into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Schwab Large Cap Value, you can compare the effects of market volatilities on GM and Schwab Us 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 Schwab Us. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Schwab Us.
Diversification Opportunities for GM and Schwab Us
Very weak diversification
The 3 months correlation between GM and Schwab is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Schwab Large Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Large Cap 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 Schwab Us. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Large Cap has no effect on the direction of GM i.e., GM and Schwab Us go up and down completely randomly.
Pair Corralation between GM and Schwab Us
Allowing for the 90-day total investment horizon GM is expected to generate 1.44 times less return on investment than Schwab Us. In addition to that, GM is 3.12 times more volatile than Schwab Large Cap Value. It trades about 0.07 of its total potential returns per unit of risk. Schwab Large Cap Value is currently generating about 0.32 per unit of volatility. If you would invest 5,750 in Schwab Large Cap Value on October 24, 2024 and sell it today you would earn a total of 246.00 from holding Schwab Large Cap Value or generate 4.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Schwab Large Cap Value
Performance |
| Timeline |
| General Motors |
| Schwab Large Cap |
GM and Schwab Us Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Schwab Us
The main advantage of trading using opposite GM and Schwab Us positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Schwab Us 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 Schwab Us will offset losses from the drop in Schwab Us' long position.The idea behind General Motors and Schwab Large Cap Value 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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