Correlation Between GM and Two Harbors
Can any of the company-specific risk be diversified away by investing in both GM and Two Harbors 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 Two Harbors into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Two Harbors Investment, you can compare the effects of market volatilities on GM and Two Harbors 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 Two Harbors. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Two Harbors.
Diversification Opportunities for GM and Two Harbors
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between GM and Two is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Two Harbors Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Two Harbors Investment 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 Two Harbors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Two Harbors Investment has no effect on the direction of GM i.e., GM and Two Harbors go up and down completely randomly.
Pair Corralation between GM and Two Harbors
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.69 times more return on investment than Two Harbors. However, GM is 2.69 times more volatile than Two Harbors Investment. It trades about 0.07 of its potential returns per unit of risk. Two Harbors Investment is currently generating about 0.1 per unit of risk. If you would invest 3,889 in General Motors on August 28, 2024 and sell it today you would earn a total of 2,131 from holding General Motors or generate 54.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Two Harbors Investment
Performance |
| Timeline |
| General Motors |
| Two Harbors Investment |
GM and Two Harbors Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Two Harbors
The main advantage of trading using opposite GM and Two Harbors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Two Harbors 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 Two Harbors will offset losses from the drop in Two Harbors' long position.The idea behind General Motors and Two Harbors Investment 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.| Two Harbors vs. Two Harbors Investment | Two Harbors vs. Chimera Investment | Two Harbors vs. Chimera Investment | Two Harbors vs. Chimera 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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