Correlation Between GM and Whirlpool
Can any of the company-specific risk be diversified away by investing in both GM and Whirlpool 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 Whirlpool into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Whirlpool SA, you can compare the effects of market volatilities on GM and Whirlpool 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 Whirlpool. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Whirlpool.
Diversification Opportunities for GM and Whirlpool
Excellent diversification
The 3 months correlation between GM and Whirlpool is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Whirlpool SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whirlpool SA 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 Whirlpool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whirlpool SA has no effect on the direction of GM i.e., GM and Whirlpool go up and down completely randomly.
Pair Corralation between GM and Whirlpool
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.82 times more return on investment than Whirlpool. However, GM is 1.82 times more volatile than Whirlpool SA. It trades about 0.26 of its potential returns per unit of risk. Whirlpool SA is currently generating about -0.16 per unit of risk. If you would invest 4,573 in General Motors on August 26, 2024 and sell it today you would earn a total of 1,280 from holding General Motors or generate 27.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. Whirlpool SA
Performance |
| Timeline |
| General Motors |
| Whirlpool SA |
GM and Whirlpool Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Whirlpool
The main advantage of trading using opposite GM and Whirlpool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Whirlpool 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 Whirlpool will offset losses from the drop in Whirlpool's long position.The idea behind General Motors and Whirlpool SA 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.| Whirlpool vs. Lupatech SA | Whirlpool vs. Rossi Residencial SA | Whirlpool vs. Fras le SA | Whirlpool vs. Clave Indices De |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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