Correlation Between GM and HiTi Digital

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Can any of the company-specific risk be diversified away by investing in both GM and HiTi Digital 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 HiTi Digital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and HiTi Digital, you can compare the effects of market volatilities on GM and HiTi Digital 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 HiTi Digital. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and HiTi Digital.

Diversification Opportunities for GM and HiTi Digital

0.72
  Correlation Coefficient

Poor diversification

The 3 months correlation between GM and HiTi is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and HiTi Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HiTi Digital 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 HiTi Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HiTi Digital has no effect on the direction of GM i.e., GM and HiTi Digital go up and down completely randomly.

Pair Corralation between GM and HiTi Digital

Allowing for the 90-day total investment horizon GM is expected to generate 2.16 times less return on investment than HiTi Digital. But when comparing it to its historical volatility, General Motors is 4.24 times less risky than HiTi Digital. It trades about 0.14 of its potential returns per unit of risk. HiTi Digital is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  697.00  in HiTi Digital on August 26, 2024 and sell it today you would earn a total of  1,054  from holding HiTi Digital or generate 151.22% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy96.79%
ValuesDaily Returns

General Motors  vs.  HiTi Digital

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.
HiTi Digital 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in HiTi Digital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, HiTi Digital showed solid returns over the last few months and may actually be approaching a breakup point.

GM and HiTi Digital Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and HiTi Digital

The main advantage of trading using opposite GM and HiTi Digital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, HiTi Digital 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 HiTi Digital will offset losses from the drop in HiTi Digital's long position.
The idea behind General Motors and HiTi Digital 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.

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