Correlation Between GM and Davis Select

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

By analyzing existing cross correlation between General Motors and Davis Select Worldwide, you can compare the effects of market volatilities on GM and Davis Select 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 Davis Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Davis Select.

Diversification Opportunities for GM and Davis Select

0.29

Correlation Coefficient

GM  Davis Select

Modest diversification

The 3 months correlation between GM and Davis is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Davis Select Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Worldwide 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 Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Worldwide has no effect on the direction of GM i.e., GM and Davis Select go up and down completely randomly.

Pair Corralation between GM and Davis Select

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Davis Select. In addition to that, GM is 2.4 times more volatile than Davis Select Worldwide. It trades about -0.07 of its total potential returns per unit of risk. Davis Select Worldwide is currently generating about -0.04 per unit of volatility. If you would invest  3,733  in Davis Select Worldwide on October 20, 2024 and sell it today you would lose (58.50) from holding Davis Select Worldwide or give up 1.57% of portfolio value over 90 days.

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

General Motors  vs.  Davis Select Worldwide

General Motors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Davis Select Worldwide

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Davis Select Worldwide has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Davis Select is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM and Davis Select

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

The idea behind General Motors and Davis Select Worldwide 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.