Correlation Between GM and Dycom Industries

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

Diversification Opportunities for GM and Dycom Industries

0.82
  Correlation Coefficient

Very poor diversification

The 3 months correlation between GM and Dycom is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Dycom Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dycom Industries 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 Dycom Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dycom Industries has no effect on the direction of GM i.e., GM and Dycom Industries go up and down completely randomly.

Pair Corralation between GM and Dycom Industries

Allowing for the 90-day total investment horizon GM is expected to generate 1.27 times less return on investment than Dycom Industries. But when comparing it to its historical volatility, General Motors is 1.14 times less risky than Dycom Industries. It trades about 0.37 of its potential returns per unit of risk. Dycom Industries is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  12,259  in Dycom Industries on December 29, 2023 and sell it today you would earn a total of  2,094  from holding Dycom Industries or generate 17.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

General Motors  vs.  Dycom Industries

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 18 (%) 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.
Dycom Industries 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Dycom Industries are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly sluggish basic indicators, Dycom Industries showed solid returns over the last few months and may actually be approaching a breakup point.

GM and Dycom Industries Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and Dycom Industries

The main advantage of trading using opposite GM and Dycom Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Dycom Industries 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 Dycom Industries will offset losses from the drop in Dycom Industries' long position.
The idea behind General Motors and Dycom Industries 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.

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