Correlation Between GM and USA Equities
Can any of the company-specific risk be diversified away by investing in both GM and USA Equities 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 USA Equities into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and USA Equities Corp, you can compare the effects of market volatilities on GM and USA Equities 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 USA Equities. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and USA Equities.
Diversification Opportunities for GM and USA Equities
-0.2 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and USA is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and USA Equities Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on USA Equities 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 USA Equities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of USA Equities Corp has no effect on the direction of GM i.e., GM and USA Equities go up and down completely randomly.
Pair Corralation between GM and USA Equities
Allowing for the 90-day total investment horizon GM is expected to generate 19.19 times less return on investment than USA Equities. But when comparing it to its historical volatility, General Motors is 10.55 times less risky than USA Equities. It trades about 0.05 of its potential returns per unit of risk. USA Equities Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 16.00 in USA Equities Corp on August 29, 2024 and sell it today you would earn a total of 2.00 from holding USA Equities Corp or generate 12.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. USA Equities Corp
Performance |
| Timeline |
| General Motors |
| USA Equities Corp |
GM and USA Equities Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and USA Equities
The main advantage of trading using opposite GM and USA Equities positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, USA Equities 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 USA Equities will offset losses from the drop in USA Equities' long position.The idea behind General Motors and USA Equities 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.| USA Equities vs. Brainsway | USA Equities vs. Venus Concept | USA Equities vs. Tactile Systems Technology | USA Equities vs. Icecure Medical |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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