Correlation Between Standard and Gentex

Can any of the company-specific risk be diversified away by investing in both Standard and Gentex 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 Standard and Gentex into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Standard Motor Products and Gentex, you can compare the effects of market volatilities on Standard and Gentex 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 Standard with a short position of Gentex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Standard and Gentex.

Diversification Opportunities for Standard and Gentex

0.21

Correlation Coefficient

Standard  Gentex

Modest diversification

The 3 months correlation between Standard and Gentex is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Standard Motor Products and Gentex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gentex and Standard 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 Standard Motor Products are associated (or correlated) with Gentex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gentex has no effect on the direction of Standard i.e., Standard and Gentex go up and down completely randomly.

Pair Corralation between Standard and Gentex

Considering the 90-day investment horizon Standard Motor Products is expected to generate 1.55 times more return on investment than Gentex. However, Standard is 1.55 times more volatile than Gentex. It trades about 0.01 of its potential returns per unit of risk. Gentex is currently generating about -0.11 per unit of risk. If you would invest  3,030  in Standard Motor Products on March 6, 2024 and sell it today you would earn a total of  0.00  from holding Standard Motor Products or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Standard Motor Products  vs.  Gentex

Standard Motor Products

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Standard Motor Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable primary indicators, Standard is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Gentex

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gentex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Standard and Gentex

The main advantage of trading using opposite Standard and Gentex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Standard position performs unexpectedly, Gentex 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 Gentex will offset losses from the drop in Gentex's long position.

The idea behind Standard Motor Products and Gentex 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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.