Correlation Between GM and China TowerLimited
Can any of the company-specific risk be diversified away by investing in both GM and China TowerLimited 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 China TowerLimited into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and China Tower, you can compare the effects of market volatilities on GM and China TowerLimited 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 China TowerLimited. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and China TowerLimited.
Diversification Opportunities for GM and China TowerLimited
-0.42 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and China is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and China Tower in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China TowerLimited 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 China TowerLimited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China TowerLimited has no effect on the direction of GM i.e., GM and China TowerLimited go up and down completely randomly.
Pair Corralation between GM and China TowerLimited
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the China TowerLimited. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.6 times less risky than China TowerLimited. The stock trades about -0.1 of its potential returns per unit of risk. The China Tower is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 159.00 in China Tower on January 5, 2025 and sell it today you would earn a total of 26.00 from holding China Tower or generate 16.35% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. China Tower
Performance |
| Timeline |
| General Motors |
| China TowerLimited |
GM and China TowerLimited Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and China TowerLimited
The main advantage of trading using opposite GM and China TowerLimited positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, China TowerLimited 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 China TowerLimited will offset losses from the drop in China TowerLimited's long position.The idea behind General Motors and China Tower 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.| China TowerLimited vs. Singapore Telecommunications Limited | China TowerLimited vs. Vodafone Group PLC | China TowerLimited vs. PT Indosat Tbk | China TowerLimited vs. KDDI Corp |
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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