Correlation Between GM and Wealthbuilder Moderate
Can any of the company-specific risk be diversified away by investing in both GM and Wealthbuilder Moderate 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 Wealthbuilder Moderate into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Wealthbuilder Moderate Balanced, you can compare the effects of market volatilities on GM and Wealthbuilder Moderate 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 Wealthbuilder Moderate. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Wealthbuilder Moderate.
Diversification Opportunities for GM and Wealthbuilder Moderate
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between GM and Wealthbuilder is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Wealthbuilder Moderate Balance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wealthbuilder Moderate 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 Wealthbuilder Moderate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wealthbuilder Moderate has no effect on the direction of GM i.e., GM and Wealthbuilder Moderate go up and down completely randomly.
Pair Corralation between GM and Wealthbuilder Moderate
Allowing for the 90-day total investment horizon General Motors is expected to generate 4.89 times more return on investment than Wealthbuilder Moderate. However, GM is 4.89 times more volatile than Wealthbuilder Moderate Balanced. It trades about 0.05 of its potential returns per unit of risk. Wealthbuilder Moderate Balanced is currently generating about 0.07 per unit of risk. If you would invest 3,805 in General Motors on September 3, 2024 and sell it today you would earn a total of 1,699 from holding General Motors or generate 44.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Wealthbuilder Moderate Balance
Performance |
| Timeline |
| General Motors |
| Wealthbuilder Moderate |
GM and Wealthbuilder Moderate Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Wealthbuilder Moderate
The main advantage of trading using opposite GM and Wealthbuilder Moderate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Wealthbuilder Moderate 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 Wealthbuilder Moderate will offset losses from the drop in Wealthbuilder Moderate's long position.The idea behind General Motors and Wealthbuilder Moderate Balanced 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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