Correlation Between GM and DXP Enterprises
Can any of the company-specific risk be diversified away by investing in both GM and DXP Enterprises 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 DXP Enterprises into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and DXP Enterprises, you can compare the effects of market volatilities on GM and DXP Enterprises 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 DXP Enterprises. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and DXP Enterprises.
Diversification Opportunities for GM and DXP Enterprises
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and DXP is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and DXP Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DXP Enterprises 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 DXP Enterprises. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DXP Enterprises has no effect on the direction of GM i.e., GM and DXP Enterprises go up and down completely randomly.
Pair Corralation between GM and DXP Enterprises
Allowing for the 90-day total investment horizon GM is expected to generate 4.44 times less return on investment than DXP Enterprises. But when comparing it to its historical volatility, General Motors is 2.46 times less risky than DXP Enterprises. It trades about 0.16 of its potential returns per unit of risk. DXP Enterprises is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 3,424 in DXP Enterprises on January 20, 2024 and sell it today you would earn a total of 1,591 from holding DXP Enterprises or generate 46.47% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
General Motors vs. DXP Enterprises
Performance |
Timeline |
General Motors |
DXP Enterprises |
GM and DXP Enterprises Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GM and DXP Enterprises
The main advantage of trading using opposite GM and DXP Enterprises positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, DXP Enterprises 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 DXP Enterprises will offset losses from the drop in DXP Enterprises' long position.The idea behind General Motors and DXP Enterprises 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.DXP Enterprises vs. Global Industrial Co | DXP Enterprises vs. EVI Industries | DXP Enterprises vs. Core Main | DXP Enterprises vs. Distribution Solutions Group |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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