Correlation Between GM and Tempur Sealy
Can any of the company-specific risk be diversified away by investing in both GM and Tempur Sealy 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 Tempur Sealy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Tempur Sealy International, you can compare the effects of market volatilities on GM and Tempur Sealy 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 Tempur Sealy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Tempur Sealy.
Diversification Opportunities for GM and Tempur Sealy
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Tempur is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Tempur Sealy International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tempur Sealy Interna 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 Tempur Sealy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tempur Sealy Interna has no effect on the direction of GM i.e., GM and Tempur Sealy go up and down completely randomly.
Pair Corralation between GM and Tempur Sealy
Allowing for the 90-day total investment horizon GM is expected to generate 1.21 times less return on investment than Tempur Sealy. But when comparing it to its historical volatility, General Motors is 1.0 times less risky than Tempur Sealy. It trades about 0.05 of its potential returns per unit of risk. Tempur Sealy International is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 3,105 in Tempur Sealy International on August 27, 2024 and sell it today you would earn a total of 2,369 from holding Tempur Sealy International or generate 76.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Tempur Sealy International
Performance |
| Timeline |
| General Motors |
| Tempur Sealy Interna |
GM and Tempur Sealy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Tempur Sealy
The main advantage of trading using opposite GM and Tempur Sealy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Tempur Sealy 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 Tempur Sealy will offset losses from the drop in Tempur Sealy's long position.The idea behind General Motors and Tempur Sealy International 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.| Tempur Sealy vs. La Z Boy Incorporated | Tempur Sealy vs. Purple Innovation | Tempur Sealy vs. MasterBrand | Tempur Sealy vs. Ethan Allen Interiors |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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