Correlation Between United States and GP Investments

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

By analyzing existing cross correlation between United States Steel and GP Investments, you can compare the effects of market volatilities on United States and GP Investments 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 United States with a short position of GP Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and GP Investments.

Diversification Opportunities for United States and GP Investments

-0.48

Correlation Coefficient

United States  GP Investments

Very good diversification

The 3 months correlation between United and GPIV33 is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and GP Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GP Investments and United States 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 United States Steel are associated (or correlated) with GP Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GP Investments has no effect on the direction of United States i.e., United States and GP Investments go up and down completely randomly.

Pair Corralation between United States and GP Investments

Assuming the 90 days trading horizon United States is expected to generate 3.36 times less return on investment than GP Investments. But when comparing it to its historical volatility, United States Steel is 1.6 times less risky than GP Investments. It trades about 0.01 of its potential returns per unit of risk. GP Investments is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  408.00  in GP Investments on September 13, 2024 and sell it today you would earn a total of  3.00  from holding GP Investments or generate 0.74% return on investment over 90 days.

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

United States Steel  vs.  GP Investments

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

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

GP Investments

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GP Investments are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, GP Investments may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with United States and GP Investments

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

The idea behind United States Steel and GP Investments 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..