Correlation Between GM and CN MODERN
Can any of the company-specific risk be diversified away by investing in both GM and CN MODERN 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 CN MODERN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and CN MODERN DAIRY, you can compare the effects of market volatilities on GM and CN MODERN 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 CN MODERN. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and CN MODERN.
Diversification Opportunities for GM and CN MODERN
Weak diversification
The 3 months correlation between GM and 07M is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CN MODERN DAIRY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CN MODERN DAIRY 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 CN MODERN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CN MODERN DAIRY has no effect on the direction of GM i.e., GM and CN MODERN go up and down completely randomly.
Pair Corralation between GM and CN MODERN
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.65 times more return on investment than CN MODERN. However, General Motors is 1.55 times less risky than CN MODERN. It trades about 0.28 of its potential returns per unit of risk. CN MODERN DAIRY is currently generating about 0.0 per unit of risk. If you would invest 4,648 in General Motors on August 28, 2024 and sell it today you would earn a total of 1,372 from holding General Motors or generate 29.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. CN MODERN DAIRY
Performance |
| Timeline |
| General Motors |
| CN MODERN DAIRY |
GM and CN MODERN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and CN MODERN
The main advantage of trading using opposite GM and CN MODERN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, CN MODERN 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 CN MODERN will offset losses from the drop in CN MODERN's long position.The idea behind General Motors and CN MODERN DAIRY 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.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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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