Correlation Between GM and Lyxor TIPS
Can any of the company-specific risk be diversified away by investing in both GM and Lyxor TIPS 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 Lyxor TIPS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Lyxor TIPS DR, you can compare the effects of market volatilities on GM and Lyxor TIPS 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 Lyxor TIPS. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Lyxor TIPS.
Diversification Opportunities for GM and Lyxor TIPS
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Lyxor is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Lyxor TIPS DR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor TIPS DR 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 Lyxor TIPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor TIPS DR has no effect on the direction of GM i.e., GM and Lyxor TIPS go up and down completely randomly.
Pair Corralation between GM and Lyxor TIPS
Allowing for the 90-day total investment horizon General Motors is expected to generate 3.78 times more return on investment than Lyxor TIPS. However, GM is 3.78 times more volatile than Lyxor TIPS DR. It trades about 0.32 of its potential returns per unit of risk. Lyxor TIPS DR is currently generating about 0.24 per unit of risk. If you would invest 5,273 in General Motors on August 28, 2024 and sell it today you would earn a total of 747.00 from holding General Motors or generate 14.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Lyxor TIPS DR
Performance |
| Timeline |
| General Motors |
| Lyxor TIPS DR |
GM and Lyxor TIPS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Lyxor TIPS
The main advantage of trading using opposite GM and Lyxor TIPS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Lyxor TIPS 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 Lyxor TIPS will offset losses from the drop in Lyxor TIPS's long position.The idea behind General Motors and Lyxor TIPS DR 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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