Correlation Between GM and Texas Rare
Can any of the company-specific risk be diversified away by investing in both GM and Texas Rare 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 Texas Rare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Texas Rare Earth, you can compare the effects of market volatilities on GM and Texas Rare 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 Texas Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Texas Rare.
Diversification Opportunities for GM and Texas Rare
-0.76 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between GM and Texas is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Texas Rare Earth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Rare Earth 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 Texas Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Rare Earth has no effect on the direction of GM i.e., GM and Texas Rare go up and down completely randomly.
Pair Corralation between GM and Texas Rare
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.36 times more return on investment than Texas Rare. However, General Motors is 2.75 times less risky than Texas Rare. It trades about 0.05 of its potential returns per unit of risk. Texas Rare Earth is currently generating about -0.04 per unit of risk. If you would invest 3,807 in General Motors on August 26, 2024 and sell it today you would earn a total of 2,046 from holding General Motors or generate 53.74% 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. Texas Rare Earth
Performance |
| Timeline |
| General Motors |
| Texas Rare Earth |
GM and Texas Rare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Texas Rare
The main advantage of trading using opposite GM and Texas Rare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Texas Rare 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 Texas Rare will offset losses from the drop in Texas Rare's long position.The idea behind General Motors and Texas Rare Earth 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.| Texas Rare vs. Ucore Rare Metals | Texas Rare vs. Lynas Rare Earths | Texas Rare vs. Arafura Resources | Texas Rare vs. Commerce Resources Corp |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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