Correlation Between GM and China Petrochemical
Can any of the company-specific risk be diversified away by investing in both GM and China Petrochemical 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 China Petrochemical into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and China Petrochemical Development, you can compare the effects of market volatilities on GM and China Petrochemical 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 China Petrochemical. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and China Petrochemical.
Diversification Opportunities for GM and China Petrochemical
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and China is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and China Petrochemical Developmen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Petrochemical 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 China Petrochemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Petrochemical has no effect on the direction of GM i.e., GM and China Petrochemical go up and down completely randomly.
Pair Corralation between GM and China Petrochemical
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.27 times more return on investment than China Petrochemical. However, GM is 1.27 times more volatile than China Petrochemical Development. It trades about 0.14 of its potential returns per unit of risk. China Petrochemical Development is currently generating about -0.2 per unit of risk. If you would invest 4,863 in General Motors on August 25, 2024 and sell it today you would earn a total of 990.00 from holding General Motors or generate 20.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 98.44% |
| Values | Daily Returns |
General Motors vs. China Petrochemical Developmen
Performance |
| Timeline |
| General Motors |
| China Petrochemical |
GM and China Petrochemical Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and China Petrochemical
The main advantage of trading using opposite GM and China Petrochemical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, China Petrochemical 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 China Petrochemical will offset losses from the drop in China Petrochemical's long position.The idea behind General Motors and China Petrochemical Development 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.| China Petrochemical vs. USI Corp | China Petrochemical vs. Grand Pacific Petrochemical | China Petrochemical vs. Taiwan Styrene Monomer | China Petrochemical vs. China Steel Corp |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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