Correlation Between GM and Tungsten West
Can any of the company-specific risk be diversified away by investing in both GM and Tungsten West 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 Tungsten West into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Tungsten West PLC, you can compare the effects of market volatilities on GM and Tungsten West 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 Tungsten West. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Tungsten West.
Diversification Opportunities for GM and Tungsten West
-0.6 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Tungsten is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Tungsten West PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tungsten West PLC 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 Tungsten West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tungsten West PLC has no effect on the direction of GM i.e., GM and Tungsten West go up and down completely randomly.
Pair Corralation between GM and Tungsten West
Allowing for the 90-day total investment horizon GM is expected to generate 2.26 times less return on investment than Tungsten West. But when comparing it to its historical volatility, General Motors is 4.44 times less risky than Tungsten West. It trades about 0.07 of its potential returns per unit of risk. Tungsten West PLC is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 325.00 in Tungsten West PLC on August 31, 2024 and sell it today you would lose (25.00) from holding Tungsten West PLC or give up 7.69% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.2% |
| Values | Daily Returns |
General Motors vs. Tungsten West PLC
Performance |
| Timeline |
| General Motors |
| Tungsten West PLC |
GM and Tungsten West Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Tungsten West
The main advantage of trading using opposite GM and Tungsten West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Tungsten West 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 Tungsten West will offset losses from the drop in Tungsten West's long position.The idea behind General Motors and Tungsten West PLC 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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