Correlation Between GM and Wendys
Can any of the company-specific risk be diversified away by investing in both GM and Wendys 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 Wendys into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and The Wendys Co, you can compare the effects of market volatilities on GM and Wendys 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 Wendys. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Wendys.
Diversification Opportunities for GM and Wendys
Very weak diversification
The 3 months correlation between GM and Wendys is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and The Wendys Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Wendys 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 Wendys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Wendys has no effect on the direction of GM i.e., GM and Wendys go up and down completely randomly.
Pair Corralation between GM and Wendys
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.75 times more return on investment than Wendys. However, General Motors is 1.34 times less risky than Wendys. It trades about 0.14 of its potential returns per unit of risk. The Wendys Co is currently generating about -0.1 per unit of risk. If you would invest 5,292 in General Motors on August 24, 2024 and sell it today you would earn a total of 276.00 from holding General Motors or generate 5.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. The Wendys Co
Performance |
| Timeline |
| General Motors |
| The Wendys |
GM and Wendys Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Wendys
The main advantage of trading using opposite GM and Wendys positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Wendys 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 Wendys will offset losses from the drop in Wendys' long position.The idea behind General Motors and The Wendys Co 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.| Wendys vs. Yum Brands | Wendys vs. Dominos Pizza | Wendys vs. Darden Restaurants | Wendys vs. Papa Johns International |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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