Correlation Between GM and Novocure
Can any of the company-specific risk be diversified away by investing in both GM and Novocure 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 Novocure into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Novocure, you can compare the effects of market volatilities on GM and Novocure 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 Novocure. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Novocure.
Diversification Opportunities for GM and Novocure
Good diversification
The 3 months correlation between GM and Novocure is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Novocure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novocure 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 Novocure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novocure has no effect on the direction of GM i.e., GM and Novocure go up and down completely randomly.
Pair Corralation between GM and Novocure
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.27 times more return on investment than Novocure. However, General Motors is 3.75 times less risky than Novocure. It trades about -0.09 of its potential returns per unit of risk. Novocure is currently generating about -0.13 per unit of risk. If you would invest 4,342 in General Motors on January 21, 2024 and sell it today you would lose (105.00) from holding General Motors or give up 2.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. Novocure
Performance |
| Timeline |
| General Motors |
| Novocure |
GM and Novocure Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Novocure
The main advantage of trading using opposite GM and Novocure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Novocure 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 Novocure will offset losses from the drop in Novocure's long position.The idea behind General Motors and Novocure 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.| Novocure vs. Agilent Technologies | Novocure vs. Illumina | Novocure vs. Waters | Novocure vs. Thermo Fisher Scientific |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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