Correlation Between GM and Wilmington Municipal
Can any of the company-specific risk be diversified away by investing in both GM and Wilmington Municipal 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 Wilmington Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Wilmington Municipal Bond, you can compare the effects of market volatilities on GM and Wilmington Municipal 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 Wilmington Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Wilmington Municipal.
Diversification Opportunities for GM and Wilmington Municipal
-0.66 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and Wilmington is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Wilmington Municipal Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilmington Municipal Bond 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 Wilmington Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilmington Municipal Bond has no effect on the direction of GM i.e., GM and Wilmington Municipal go up and down completely randomly.
Pair Corralation between GM and Wilmington Municipal
Allowing for the 90-day total investment horizon General Motors is expected to generate 12.73 times more return on investment than Wilmington Municipal. However, GM is 12.73 times more volatile than Wilmington Municipal Bond. It trades about 0.08 of its potential returns per unit of risk. Wilmington Municipal Bond is currently generating about 0.13 per unit of risk. If you would invest 4,551 in General Motors on September 1, 2024 and sell it today you would earn a total of 1,008 from holding General Motors or generate 22.15% 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. Wilmington Municipal Bond
Performance |
| Timeline |
| General Motors |
| Wilmington Municipal Bond |
GM and Wilmington Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Wilmington Municipal
The main advantage of trading using opposite GM and Wilmington Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Wilmington Municipal 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 Wilmington Municipal will offset losses from the drop in Wilmington Municipal's long position.The idea behind General Motors and Wilmington Municipal Bond 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.| Wilmington Municipal vs. Wilmington Global Alpha | Wilmington Municipal vs. Wilmington Global Alpha | Wilmington Municipal vs. Wilmington Broad Market | Wilmington Municipal vs. Wilmington Municipal Bond |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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