Correlation Between GM and TRAVEL +
Can any of the company-specific risk be diversified away by investing in both GM and TRAVEL + 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 TRAVEL + into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and TRAVEL LEISURE DL 01, you can compare the effects of market volatilities on GM and TRAVEL + 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 TRAVEL +. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and TRAVEL +.
Diversification Opportunities for GM and TRAVEL +
Very poor diversification
The 3 months correlation between GM and TRAVEL is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and TRAVEL LEISURE DL 01 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRAVEL LEISURE DL 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 TRAVEL +. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRAVEL LEISURE DL has no effect on the direction of GM i.e., GM and TRAVEL + go up and down completely randomly.
Pair Corralation between GM and TRAVEL +
Allowing for the 90-day total investment horizon GM is expected to generate 2.24 times less return on investment than TRAVEL +. In addition to that, GM is 1.49 times more volatile than TRAVEL LEISURE DL 01. It trades about 0.12 of its total potential returns per unit of risk. TRAVEL LEISURE DL 01 is currently generating about 0.4 per unit of volatility. If you would invest 4,480 in TRAVEL LEISURE DL 01 on August 31, 2024 and sell it today you would earn a total of 770.00 from holding TRAVEL LEISURE DL 01 or generate 17.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
General Motors vs. TRAVEL LEISURE DL 01
Performance |
| Timeline |
| General Motors |
| TRAVEL LEISURE DL |
GM and TRAVEL + Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and TRAVEL +
The main advantage of trading using opposite GM and TRAVEL + positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, TRAVEL + 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 TRAVEL + will offset losses from the drop in TRAVEL +'s long position.The idea behind General Motors and TRAVEL LEISURE DL 01 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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