Correlation Between GM and Transurban
Can any of the company-specific risk be diversified away by investing in both GM and Transurban 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 Transurban into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Transurban Group, you can compare the effects of market volatilities on GM and Transurban 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 Transurban. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Transurban.
Diversification Opportunities for GM and Transurban
-0.4 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and Transurban is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Transurban Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transurban Group 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 Transurban. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transurban Group has no effect on the direction of GM i.e., GM and Transurban go up and down completely randomly.
Pair Corralation between GM and Transurban
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.56 times more return on investment than Transurban. However, GM is 1.56 times more volatile than Transurban Group. It trades about 0.13 of its potential returns per unit of risk. Transurban Group is currently generating about -0.02 per unit of risk. If you would invest 5,154 in General Motors on August 30, 2024 and sell it today you would earn a total of 396.00 from holding General Motors or generate 7.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Transurban Group
Performance |
| Timeline |
| General Motors |
| Transurban Group |
GM and Transurban Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Transurban
The main advantage of trading using opposite GM and Transurban positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Transurban 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 Transurban will offset losses from the drop in Transurban's long position.The idea behind General Motors and Transurban Group 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.| Transurban vs. Entegris | Transurban vs. Tower Semiconductor | Transurban vs. Elmos Semiconductor SE | Transurban vs. Evolution Gaming Group |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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