Correlation Between Xiaomi and General Dynamics
Can any of the company-specific risk be diversified away by investing in both Xiaomi and General Dynamics 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 Xiaomi and General Dynamics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xiaomi and General Dynamics, you can compare the effects of market volatilities on Xiaomi and General Dynamics 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 Xiaomi with a short position of General Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xiaomi and General Dynamics.
Diversification Opportunities for Xiaomi and General Dynamics
-0.75 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Xiaomi and General is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Xiaomi and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and Xiaomi 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 Xiaomi are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Xiaomi i.e., Xiaomi and General Dynamics go up and down completely randomly.
Pair Corralation between Xiaomi and General Dynamics
Assuming the 90 days trading horizon Xiaomi is expected to generate 8.89 times more return on investment than General Dynamics. However, Xiaomi is 8.89 times more volatile than General Dynamics. It trades about 0.21 of its potential returns per unit of risk. General Dynamics is currently generating about 0.22 per unit of risk. If you would invest 8,100 in Xiaomi on October 20, 2024 and sell it today you would earn a total of 1,500 from holding Xiaomi or generate 18.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
Xiaomi vs. General Dynamics
Performance |
| Timeline |
| Xiaomi |
| General Dynamics |
Xiaomi and General Dynamics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Xiaomi and General Dynamics
The main advantage of trading using opposite Xiaomi and General Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xiaomi position performs unexpectedly, General Dynamics 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 General Dynamics will offset losses from the drop in General Dynamics' long position.The idea behind Xiaomi and General Dynamics 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.| General Dynamics vs. The Boeing | General Dynamics vs. Lockheed Martin | General Dynamics vs. Textron | General Dynamics vs. Amazon Inc |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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