Correlation Between GM and Professional Waste
Can any of the company-specific risk be diversified away by investing in both GM and Professional Waste 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 Professional Waste into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Professional Waste Technology, you can compare the effects of market volatilities on GM and Professional Waste 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 Professional Waste. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Professional Waste.
Diversification Opportunities for GM and Professional Waste
0.09 | Correlation Coefficient |
Significant diversification
The 3 months correlation between GM and Professional is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Professional Waste Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Professional Waste 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 Professional Waste. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Professional Waste has no effect on the direction of GM i.e., GM and Professional Waste go up and down completely randomly.
Pair Corralation between GM and Professional Waste
Allowing for the 90-day total investment horizon GM is expected to generate 31.85 times less return on investment than Professional Waste. But when comparing it to its historical volatility, General Motors is 31.5 times less risky than Professional Waste. It trades about 0.05 of its potential returns per unit of risk. Professional Waste Technology is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 35.00 in Professional Waste Technology on September 24, 2024 and sell it today you would lose (35.00) from holding Professional Waste Technology or give up 100.0% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 96.58% |
Values | Daily Returns |
General Motors vs. Professional Waste Technology
Performance |
Timeline |
General Motors |
Professional Waste |
GM and Professional Waste Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GM and Professional Waste
The main advantage of trading using opposite GM and Professional Waste positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Professional Waste 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 Professional Waste will offset losses from the drop in Professional Waste's long position.The idea behind General Motors and Professional Waste Technology 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.Professional Waste vs. Bhiraj Office Leasehold | Professional Waste vs. Communication System Solution | Professional Waste vs. Turnkey Communication Services | Professional Waste vs. Asia Medical Agricultural |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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