Correlation Between GM and National Plastic
Can any of the company-specific risk be diversified away by investing in both GM and National Plastic 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 National Plastic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and National Plastic Co, you can compare the effects of market volatilities on GM and National Plastic 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 National Plastic. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and National Plastic.
Diversification Opportunities for GM and National Plastic
-0.03 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and National is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and National Plastic Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Plastic 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 National Plastic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Plastic has no effect on the direction of GM i.e., GM and National Plastic go up and down completely randomly.
Pair Corralation between GM and National Plastic
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.87 times more return on investment than National Plastic. However, GM is 1.87 times more volatile than National Plastic Co. It trades about 0.07 of its potential returns per unit of risk. National Plastic Co is currently generating about -0.11 per unit of risk. If you would invest 5,273 in General Motors on August 29, 2024 and sell it today you would earn a total of 206.00 from holding General Motors or generate 3.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. National Plastic Co
Performance |
| Timeline |
| General Motors |
| National Plastic |
GM and National Plastic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and National Plastic
The main advantage of trading using opposite GM and National Plastic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, National Plastic 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 National Plastic will offset losses from the drop in National Plastic's long position.The idea behind General Motors and National Plastic Co 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.| National Plastic vs. Busan Industrial Co | National Plastic vs. Busan Ind | National Plastic vs. Shinhan WTI Futures | National Plastic vs. Finebesteel |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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