Correlation Between GM and Westwood Quality
Can any of the company-specific risk be diversified away by investing in both GM and Westwood Quality 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 Quality 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 Quality Smallcap, you can compare the effects of market volatilities on GM and Westwood Quality 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 Quality. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Westwood Quality.
Diversification Opportunities for GM and Westwood Quality
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Westwood is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Westwood Quality Smallcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Quality Smallcap 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 Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Quality Smallcap has no effect on the direction of GM i.e., GM and Westwood Quality go up and down completely randomly.
Pair Corralation between GM and Westwood Quality
Allowing for the 90-day total investment horizon GM is expected to generate 1.06 times less return on investment than Westwood Quality. In addition to that, GM is 1.6 times more volatile than Westwood Quality Smallcap. It trades about 0.12 of its total potential returns per unit of risk. Westwood Quality Smallcap is currently generating about 0.2 per unit of volatility. If you would invest 2,168 in Westwood Quality Smallcap on August 31, 2024 and sell it today you would earn a total of 170.00 from holding Westwood Quality Smallcap or generate 7.84% 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. Westwood Quality Smallcap
Performance |
| Timeline |
| General Motors |
| Westwood Quality Smallcap |
GM and Westwood Quality Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Westwood Quality
The main advantage of trading using opposite GM and Westwood Quality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Westwood Quality 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 Quality will offset losses from the drop in Westwood Quality's long position.The idea behind General Motors and Westwood Quality Smallcap 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 Quality vs. Ultra Short Fixed Income | Westwood Quality vs. Dreyfusstandish Global Fixed | Westwood Quality vs. Ft 7934 Corporate | Westwood Quality vs. Rationalpier 88 Convertible |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
Other Complementary Tools
| Theme Ratings Determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Piotroski F Score Get Piotroski F Score based on the binary analysis strategy of nine different fundamentals | |
| Equity Forecasting Use basic forecasting models to generate price predictions and determine price momentum | |
| Crypto Correlations Use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins |