Correlation Between GM and Aerodrome

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Can any of the company-specific risk be diversified away by investing in both GM and Aerodrome 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 Aerodrome into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Aerodrome Group, you can compare the effects of market volatilities on GM and Aerodrome 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 Aerodrome. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Aerodrome.

Diversification Opportunities for GM and Aerodrome

0.39
  Correlation Coefficient

Weak diversification

The 3 months correlation between GM and Aerodrome is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Aerodrome Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aerodrome Group 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 Aerodrome. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aerodrome Group has no effect on the direction of GM i.e., GM and Aerodrome go up and down completely randomly.

Pair Corralation between GM and Aerodrome

Allowing for the 90-day total investment horizon GM is expected to generate 2.98 times less return on investment than Aerodrome. But when comparing it to its historical volatility, General Motors is 3.1 times less risky than Aerodrome. It trades about 0.33 of its potential returns per unit of risk. Aerodrome Group is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  6,000  in Aerodrome Group on December 29, 2023 and sell it today you would earn a total of  1,590  from holding Aerodrome Group or generate 26.5% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy77.27%
ValuesDaily Returns

General Motors  vs.  Aerodrome Group

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.
Aerodrome Group 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Aerodrome Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aerodrome sustained solid returns over the last few months and may actually be approaching a breakup point.

GM and Aerodrome Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and Aerodrome

The main advantage of trading using opposite GM and Aerodrome positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Aerodrome 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 Aerodrome will offset losses from the drop in Aerodrome's long position.
The idea behind General Motors and Aerodrome Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.

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