Correlation Between GM and Kaimei Electronic
Can any of the company-specific risk be diversified away by investing in both GM and Kaimei Electronic 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 Kaimei Electronic into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Kaimei Electronic Corp, you can compare the effects of market volatilities on GM and Kaimei Electronic 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 Kaimei Electronic. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Kaimei Electronic.
Diversification Opportunities for GM and Kaimei Electronic
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and Kaimei is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Kaimei Electronic Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaimei Electronic Corp 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 Kaimei Electronic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaimei Electronic Corp has no effect on the direction of GM i.e., GM and Kaimei Electronic go up and down completely randomly.
Pair Corralation between GM and Kaimei Electronic
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.06 times more return on investment than Kaimei Electronic. However, GM is 1.06 times more volatile than Kaimei Electronic Corp. It trades about 0.05 of its potential returns per unit of risk. Kaimei Electronic Corp is currently generating about 0.03 per unit of risk. If you would invest 3,778 in General Motors on September 2, 2024 and sell it today you would earn a total of 1,781 from holding General Motors or generate 47.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 96.77% |
| Values | Daily Returns |
General Motors vs. Kaimei Electronic Corp
Performance |
| Timeline |
| General Motors |
| Kaimei Electronic Corp |
GM and Kaimei Electronic Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Kaimei Electronic
The main advantage of trading using opposite GM and Kaimei Electronic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Kaimei Electronic 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 Kaimei Electronic will offset losses from the drop in Kaimei Electronic's long position.The idea behind General Motors and Kaimei Electronic Corp 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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