Correlation Between GM and Tcw Select

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

By analyzing existing cross correlation between General Motors and Tcw Select Equities, you can compare the effects of market volatilities on GM and Tcw Select 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 Tcw Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Tcw Select.

Diversification Opportunities for GM and Tcw Select

0.83

Correlation Coefficient

GM  Tcw Select

Very poor diversification

The 3 months correlation between GM and Tcw is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Tcw Select Equities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tcw Select Equities 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 Tcw Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tcw Select Equities has no effect on the direction of GM i.e., GM and Tcw Select go up and down completely randomly.

Pair Corralation between GM and Tcw Select

Allowing for the 90-day total investment horizon GM is expected to generate 1.37 times less return on investment than Tcw Select. In addition to that, GM is 2.91 times more volatile than Tcw Select Equities. It trades about 0.07 of its total potential returns per unit of risk. Tcw Select Equities is currently generating about 0.29 per unit of volatility. If you would invest  2,678  in Tcw Select Equities on September 4, 2024 and sell it today you would earn a total of  163.00  from holding Tcw Select Equities or generate 6.09% 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.  Tcw Select Equities

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) 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.

Tcw Select Equities

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tcw Select Equities are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Tcw Select showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Tcw Select

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

The idea behind General Motors and Tcw Select Equities 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.