Correlation Between GM and Chun Yuan
Can any of the company-specific risk be diversified away by investing in both GM and Chun Yuan 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 Chun Yuan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Chun Yuan Steel, you can compare the effects of market volatilities on GM and Chun Yuan 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 Chun Yuan. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Chun Yuan.
Diversification Opportunities for GM and Chun Yuan
Modest diversification
The 3 months correlation between GM and Chun is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Chun Yuan Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chun Yuan Steel 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 Chun Yuan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chun Yuan Steel has no effect on the direction of GM i.e., GM and Chun Yuan go up and down completely randomly.
Pair Corralation between GM and Chun Yuan
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.38 times more return on investment than Chun Yuan. However, GM is 1.38 times more volatile than Chun Yuan Steel. It trades about 0.04 of its potential returns per unit of risk. Chun Yuan Steel is currently generating about 0.02 per unit of risk. If you would invest 4,086 in General Motors on September 1, 2024 and sell it today you would earn a total of 1,473 from holding General Motors or generate 36.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.02% |
| Values | Daily Returns |
General Motors vs. Chun Yuan Steel
Performance |
| Timeline |
| General Motors |
| Chun Yuan Steel |
GM and Chun Yuan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Chun Yuan
The main advantage of trading using opposite GM and Chun Yuan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Chun Yuan 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 Chun Yuan will offset losses from the drop in Chun Yuan's long position.The idea behind General Motors and Chun Yuan Steel 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.| Chun Yuan vs. Basso Industry Corp | Chun Yuan vs. Chung Hsin Electric Machinery | Chun Yuan vs. TYC Brother Industrial | Chun Yuan vs. TECO Electric Machinery |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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