Correlation Between GM and Air New
Can any of the company-specific risk be diversified away by investing in both GM and Air New 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 Air New into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Air New Zealand, you can compare the effects of market volatilities on GM and Air New 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 Air New. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Air New.
Diversification Opportunities for GM and Air New
Pay attention - limited upside
The 3 months correlation between GM and Air is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Air New Zealand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air New Zealand 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 Air New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air New Zealand has no effect on the direction of GM i.e., GM and Air New go up and down completely randomly.
Pair Corralation between GM and Air New
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.64 times more return on investment than Air New. However, General Motors is 1.55 times less risky than Air New. It trades about 0.12 of its potential returns per unit of risk. Air New Zealand is currently generating about -0.12 per unit of risk. If you would invest 5,197 in General Motors on August 31, 2024 and sell it today you would earn a total of 362.00 from holding General Motors or generate 6.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
General Motors vs. Air New Zealand
Performance |
| Timeline |
| General Motors |
| Air New Zealand |
GM and Air New Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Air New
The main advantage of trading using opposite GM and Air New positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Air New 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 Air New will offset losses from the drop in Air New's long position.The idea behind General Motors and Air New Zealand 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.| Air New vs. Copa Holdings SA | Air New vs. United Airlines Holdings | Air New vs. Delta Air Lines | Air New vs. SkyWest |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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