Correlation Between GM and Value Line
Can any of the company-specific risk be diversified away by investing in both GM and Value Line 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 Value Line into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Value Line Small, you can compare the effects of market volatilities on GM and Value Line 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 Value Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Value Line.
Diversification Opportunities for GM and Value Line
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Value is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Value Line Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Value Line Small 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 Value Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Value Line Small has no effect on the direction of GM i.e., GM and Value Line go up and down completely randomly.
Pair Corralation between GM and Value Line
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.12 times more return on investment than Value Line. However, GM is 2.12 times more volatile than Value Line Small. It trades about 0.17 of its potential returns per unit of risk. Value Line Small is currently generating about 0.3 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. Value Line Small
Performance |
| Timeline |
| General Motors |
| Value Line Small |
GM and Value Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Value Line
The main advantage of trading using opposite GM and Value Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Value Line 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 Value Line will offset losses from the drop in Value Line's long position.The idea behind General Motors and Value Line Small 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.| Value Line vs. Vy Goldman Sachs | Value Line vs. Franklin Gold Precious | Value Line vs. Invesco Gold Special | Value Line vs. Europac Gold Fund |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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