Correlation Between GM and White Mountains
Can any of the company-specific risk be diversified away by investing in both GM and White Mountains 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 White Mountains into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and White Mountains Insurance, you can compare the effects of market volatilities on GM and White Mountains 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 White Mountains. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and White Mountains.
Diversification Opportunities for GM and White Mountains
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and White is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and White Mountains Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on White Mountains Insurance 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 White Mountains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of White Mountains Insurance has no effect on the direction of GM i.e., GM and White Mountains go up and down completely randomly.
Pair Corralation between GM and White Mountains
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.45 times more return on investment than White Mountains. However, GM is 1.45 times more volatile than White Mountains Insurance. It trades about 0.07 of its potential returns per unit of risk. White Mountains Insurance is currently generating about 0.07 per unit of risk. If you would invest 3,503 in General Motors on November 9, 2024 and sell it today you would earn a total of 1,290 from holding General Motors or generate 36.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. White Mountains Insurance
Performance |
| Timeline |
| General Motors |
| White Mountains Insurance |
GM and White Mountains Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and White Mountains
The main advantage of trading using opposite GM and White Mountains positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, White Mountains 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 White Mountains will offset losses from the drop in White Mountains' long position.The idea behind General Motors and White Mountains Insurance 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.| White Mountains vs. NI Holdings | White Mountains vs. Donegal Group A | White Mountains vs. Donegal Group B | White Mountains vs. The Hanover Insurance |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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