Correlation Between GM and Select Energy
Can any of the company-specific risk be diversified away by investing in both GM and Select Energy 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 Select Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Select Energy Services, you can compare the effects of market volatilities on GM and Select Energy 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 Select Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Select Energy.
Diversification Opportunities for GM and Select Energy
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Select is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Select Energy Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select Energy Services 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 Select Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select Energy Services has no effect on the direction of GM i.e., GM and Select Energy go up and down completely randomly.
Pair Corralation between GM and Select Energy
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.18 times more return on investment than Select Energy. However, GM is 1.18 times more volatile than Select Energy Services. It trades about 0.06 of its potential returns per unit of risk. Select Energy Services is currently generating about -0.06 per unit of risk. If you would invest 4,434 in General Motors on February 7, 2024 and sell it today you would earn a total of 72.00 from holding General Motors or generate 1.62% 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. Select Energy Services
Performance |
| Timeline |
| General Motors |
| Select Energy Services |
GM and Select Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Select Energy
The main advantage of trading using opposite GM and Select Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Select Energy 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 Select Energy will offset losses from the drop in Select Energy's long position.The idea behind General Motors and Select Energy Services 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.| Select Energy vs. Orion Engineered Carbons | Select Energy vs. Element Solutions | Select Energy vs. Kronos Worldwide | Select Energy vs. FutureFuel Corp |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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