Correlation Between GM and Demant AS
Can any of the company-specific risk be diversified away by investing in both GM and Demant AS 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 Demant AS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Demant AS ADR, you can compare the effects of market volatilities on GM and Demant AS 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 Demant AS. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Demant AS.
Diversification Opportunities for GM and Demant AS
Excellent diversification
The 3 months correlation between GM and Demant is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Demant AS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Demant AS ADR 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 Demant AS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Demant AS ADR has no effect on the direction of GM i.e., GM and Demant AS go up and down completely randomly.
Pair Corralation between GM and Demant AS
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.08 times more return on investment than Demant AS. However, GM is 1.08 times more volatile than Demant AS ADR. It trades about 0.05 of its potential returns per unit of risk. Demant AS ADR is currently generating about 0.04 per unit of risk. If you would invest 3,757 in General Motors on August 30, 2024 and sell it today you would earn a total of 1,793 from holding General Motors or generate 47.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Demant AS ADR
Performance |
| Timeline |
| General Motors |
| Demant AS ADR |
GM and Demant AS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Demant AS
The main advantage of trading using opposite GM and Demant AS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Demant AS 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 Demant AS will offset losses from the drop in Demant AS's long position.The idea behind General Motors and Demant AS ADR 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.| Demant AS vs. CochLear Ltd ADR | Demant AS vs. GN Store Nord | Demant AS vs. GN Store Nord | Demant AS vs. Siemens Healthineers AG |
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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