Correlation Between General American and Gabelli Equity

Can any of the company-specific risk be diversified away by investing in both General American and Gabelli Equity 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 General American and Gabelli Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between General American Investors and The Gabelli Equity, you can compare the effects of market volatilities on General American and Gabelli Equity 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 General American with a short position of Gabelli Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of General American and Gabelli Equity.

Diversification Opportunities for General American and Gabelli Equity

0.45

Correlation Coefficient

General American  Gabelli Equity

Very weak diversification

The 3 months correlation between General and Gabelli is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding General American Investors and The Gabelli Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gabelli Equity and General American 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 American Investors are associated (or correlated) with Gabelli Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gabelli Equity has no effect on the direction of General American i.e., General American and Gabelli Equity go up and down completely randomly.

Pair Corralation between General American and Gabelli Equity

Assuming the 90 days trading horizon General American is expected to generate 1.37 times less return on investment than Gabelli Equity. But when comparing it to its historical volatility, General American Investors is 1.76 times less risky than Gabelli Equity. It trades about 0.06 of its potential returns per unit of risk. The Gabelli Equity is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,051  in The Gabelli Equity on September 23, 2024 and sell it today you would earn a total of  92.00  from holding The Gabelli Equity or generate 4.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

General American Investors  vs.  The Gabelli Equity

General American Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General American Investors has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, General American is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Gabelli Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Gabelli Equity has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Preferred Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with General American and Gabelli Equity

The main advantage of trading using opposite General American and Gabelli Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General American position performs unexpectedly, Gabelli Equity 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 Gabelli Equity will offset losses from the drop in Gabelli Equity's long position.

The idea behind General American Investors and The Gabelli Equity 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.

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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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.