Correlation Between General American and Investment
Can any of the company-specific risk be diversified away by investing in both General American and Investment 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 General American and Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General American Investors and Investment Of America, you can compare the effects of market volatilities on General American and Investment 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 General American with a short position of Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of General American and Investment.
Diversification Opportunities for General American and Investment
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between General and Investment is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding General American Investors and Investment Of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment Of America and General American 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 American Investors are associated (or correlated) with Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment Of America has no effect on the direction of General American i.e., General American and Investment go up and down completely randomly.
Pair Corralation between General American and Investment
Assuming the 90 days horizon General American is expected to generate 1.48 times less return on investment than Investment. But when comparing it to its historical volatility, General American Investors is 1.01 times less risky than Investment. It trades about 0.08 of its potential returns per unit of risk. Investment Of America is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,707 in Investment Of America on January 26, 2024 and sell it today you would earn a total of 1,650 from holding Investment Of America or generate 44.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General American Investors vs. Investment Of America
Performance |
| Timeline |
| General American Inv |
| Investment Of America |
General American and Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with General American and Investment
The main advantage of trading using opposite General American and Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General American position performs unexpectedly, Investment 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 Investment will offset losses from the drop in Investment's long position.| General American vs. Vanguard Total Stock | General American vs. Vanguard 500 Index | General American vs. Vanguard Total Stock | General American vs. Vanguard Total Stock |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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