Correlation Between General American and Investment

Can any of the company-specific risk be diversified away by investing in both General American and Investment 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 Investment 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 Investment Of America, you can compare the effects of market volatilities on General American and Investment 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 Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of General American and Investment.

Diversification Opportunities for General American and Investment

0.83

Correlation Coefficient

General American  Investment

Very poor diversification

The 3 months correlation between General and Investment is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding General American Investors and Investment Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Of America 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 Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Of America has no effect on the direction of General American i.e., General American and Investment go up and down completely randomly.

Pair Corralation between General American and Investment

Assuming the 90 days horizon General American Investors is expected to generate 0.81 times more return on investment than Investment. However, General American Investors is 1.23 times less risky than Investment. It trades about -0.05 of its potential returns per unit of risk. Investment Of America is currently generating about -0.08 per unit of risk. If you would invest  5,680  in General American Investors on February 5, 2024 and sell it today you would lose (46.00) from holding General American Investors or give up 0.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

General American Investors  vs.  Investment Of America

General American Inv

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General American Investors are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, General American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Investment Of America

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Investment Of America are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with General American and Investment

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

The idea behind General American Investors and Investment Of America 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.