Correlation Between GM and Zacks Small-cap
Can any of the company-specific risk be diversified away by investing in both GM and Zacks Small-cap 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 Zacks Small-cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Zacks Small Cap E, you can compare the effects of market volatilities on GM and Zacks Small-cap 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 Zacks Small-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Zacks Small-cap.
Diversification Opportunities for GM and Zacks Small-cap
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Zacks is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Zacks Small Cap E in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zacks Small 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 Zacks Small-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zacks Small Cap has no effect on the direction of GM i.e., GM and Zacks Small-cap go up and down completely randomly.
Pair Corralation between GM and Zacks Small-cap
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.62 times more return on investment than Zacks Small-cap. However, GM is 1.62 times more volatile than Zacks Small Cap E. It trades about 0.08 of its potential returns per unit of risk. Zacks Small Cap E is currently generating about 0.07 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 Together |
| Strength | Significant |
| Accuracy | 99.21% |
| Values | Daily Returns |
General Motors vs. Zacks Small Cap E
Performance |
| Timeline |
| General Motors |
| Zacks Small Cap |
GM and Zacks Small-cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Zacks Small-cap
The main advantage of trading using opposite GM and Zacks Small-cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Zacks Small-cap 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 Zacks Small-cap will offset losses from the drop in Zacks Small-cap's long position.The idea behind General Motors and Zacks Small Cap E 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.| Zacks Small-cap vs. Zacks Small Cap E | Zacks Small-cap vs. Towle Deep Value | Zacks Small-cap vs. Prudential Qma Small Cap | Zacks Small-cap vs. Paradigm Micro Cap Fund |
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 CEOs Directory module to screen CEOs from public companies around the world.
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