Correlation Between Alphabet and GM
Can any of the company-specific risk be diversified away by investing in both Alphabet and GM 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 Alphabet and GM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Alphabet Inc Class C and General Motors, you can compare the effects of market volatilities on Alphabet and GM 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 Alphabet with a short position of GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alphabet and GM.
Diversification Opportunities for Alphabet and GM
Very weak diversification
The 3 months correlation between Alphabet and GM is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Alphabet 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 Alphabet Inc Class C are associated (or correlated) with GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Alphabet i.e., Alphabet and GM go up and down completely randomly.
Pair Corralation between Alphabet and GM
Given the investment horizon of 90 days Alphabet is expected to generate 4.62 times less return on investment than GM. In addition to that, Alphabet is 1.03 times more volatile than General Motors. It trades about 0.05 of its total potential returns per unit of risk. General Motors is currently generating about 0.24 per unit of volatility. If you would invest 3,508 in General Motors on January 26, 2024 and sell it today you would earn a total of 1,000.00 from holding General Motors or generate 28.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Alphabet Inc Class C vs. General Motors
Performance |
| Timeline |
| Alphabet Class C |
| General Motors |
Alphabet and GM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Alphabet and GM
The main advantage of trading using opposite Alphabet and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.The idea behind Alphabet Inc Class C and General Motors 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.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 Global Correlations module to find global opportunities by holding instruments from different markets.
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