Correlation Between GM and Wasatch Micro
Can any of the company-specific risk be diversified away by investing in both GM and Wasatch Micro 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 Wasatch Micro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Wasatch Micro Cap, you can compare the effects of market volatilities on GM and Wasatch Micro 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 Wasatch Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Wasatch Micro.
Diversification Opportunities for GM and Wasatch Micro
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Wasatch is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Wasatch Micro Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wasatch Micro Cap 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 Wasatch Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wasatch Micro Cap has no effect on the direction of GM i.e., GM and Wasatch Micro go up and down completely randomly.
Pair Corralation between GM and Wasatch Micro
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.53 times more return on investment than Wasatch Micro. However, GM is 1.53 times more volatile than Wasatch Micro Cap. It trades about 0.05 of its potential returns per unit of risk. Wasatch Micro Cap is currently generating about 0.07 per unit of risk. If you would invest 3,807 in General Motors on August 26, 2024 and sell it today you would earn a total of 2,046 from holding General Motors or generate 53.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Wasatch Micro Cap
Performance |
| Timeline |
| General Motors |
| Wasatch Micro Cap |
GM and Wasatch Micro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Wasatch Micro
The main advantage of trading using opposite GM and Wasatch Micro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Wasatch Micro 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 Wasatch Micro will offset losses from the drop in Wasatch Micro's long position.The idea behind General Motors and Wasatch Micro Cap 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.| Wasatch Micro vs. Wasatch Small Cap | Wasatch Micro vs. Wasatch Ultra Growth | Wasatch Micro vs. Wasatch E Growth | Wasatch Micro vs. Wasatch Small Cap |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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