Correlation Between GM and Westwood Market
Can any of the company-specific risk be diversified away by investing in both GM and Westwood Market 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 Westwood Market into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Westwood Market Neutral, you can compare the effects of market volatilities on GM and Westwood Market 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 Westwood Market. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Westwood Market.
Diversification Opportunities for GM and Westwood Market
0.57 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and Westwood is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Westwood Market Neutral in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Market Neutral 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 Westwood Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Market Neutral has no effect on the direction of GM i.e., GM and Westwood Market go up and down completely randomly.
Pair Corralation between GM and Westwood Market
Allowing for the 90-day total investment horizon General Motors is expected to generate 19.88 times more return on investment than Westwood Market. However, GM is 19.88 times more volatile than Westwood Market Neutral. It trades about 0.05 of its potential returns per unit of risk. Westwood Market Neutral is currently generating about 0.25 per unit of risk. If you would invest 3,778 in General Motors on September 2, 2024 and sell it today you would earn a total of 1,781 from holding General Motors or generate 47.14% 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. Westwood Market Neutral
Performance |
| Timeline |
| General Motors |
| Westwood Market Neutral |
GM and Westwood Market Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Westwood Market
The main advantage of trading using opposite GM and Westwood Market positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Westwood Market 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 Westwood Market will offset losses from the drop in Westwood Market's long position.The idea behind General Motors and Westwood Market Neutral 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.| Westwood Market vs. Health Care Fund | Westwood Market vs. Allianzgi Health Sciences | Westwood Market vs. Fidelity Advisor Health | Westwood Market vs. Alphacentric Lifesci Healthcare |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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