Correlation Between GM and Nan Pao
Can any of the company-specific risk be diversified away by investing in both GM and Nan Pao 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 Nan Pao into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Nan Pao Resins, you can compare the effects of market volatilities on GM and Nan Pao 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 Nan Pao. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Nan Pao.
Diversification Opportunities for GM and Nan Pao
Average diversification
The 3 months correlation between GM and Nan is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Nan Pao Resins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nan Pao Resins 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 Nan Pao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nan Pao Resins has no effect on the direction of GM i.e., GM and Nan Pao go up and down completely randomly.
Pair Corralation between GM and Nan Pao
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.04 times more return on investment than Nan Pao. However, GM is 1.04 times more volatile than Nan Pao Resins. It trades about 0.08 of its potential returns per unit of risk. Nan Pao Resins is currently generating about 0.0 per unit of risk. If you would invest 4,551 in General Motors on September 1, 2024 and sell it today you would earn a total of 1,008 from holding General Motors or generate 22.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.44% |
| Values | Daily Returns |
General Motors vs. Nan Pao Resins
Performance |
| Timeline |
| General Motors |
| Nan Pao Resins |
GM and Nan Pao Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Nan Pao
The main advantage of trading using opposite GM and Nan Pao positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Nan Pao 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 Nan Pao will offset losses from the drop in Nan Pao's long position.The idea behind General Motors and Nan Pao Resins 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.| Nan Pao vs. Basso Industry Corp | Nan Pao vs. Chung Hsin Electric Machinery | Nan Pao vs. TYC Brother Industrial | Nan Pao 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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