Correlation Between GM and United Lithium
Can any of the company-specific risk be diversified away by investing in both GM and United Lithium 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 United Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and United Lithium Corp, you can compare the effects of market volatilities on GM and United Lithium 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 United Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and United Lithium.
Diversification Opportunities for GM and United Lithium
-0.46 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and United is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and United Lithium Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Lithium Corp 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 United Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Lithium Corp has no effect on the direction of GM i.e., GM and United Lithium go up and down completely randomly.
Pair Corralation between GM and United Lithium
Allowing for the 90-day total investment horizon GM is expected to generate 4.04 times less return on investment than United Lithium. But when comparing it to its historical volatility, General Motors is 5.76 times less risky than United Lithium. It trades about 0.05 of its potential returns per unit of risk. United Lithium Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 47.00 in United Lithium Corp on August 29, 2024 and sell it today you would lose (36.00) from holding United Lithium Corp or give up 76.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. United Lithium Corp
Performance |
| Timeline |
| General Motors |
| United Lithium Corp |
GM and United Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and United Lithium
The main advantage of trading using opposite GM and United Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, United Lithium 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 United Lithium will offset losses from the drop in United Lithium's long position.The idea behind General Motors and United Lithium Corp 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.| United Lithium vs. Alpha Copper Corp | United Lithium vs. REDFLEX HOLDINGS LTD | United Lithium vs. Global Helium Corp | United Lithium vs. Ridgestone Mining |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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