Correlation Between GM and China Mengniu
Can any of the company-specific risk be diversified away by investing in both GM and China Mengniu 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 Mengniu 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 Mengniu Dairy, you can compare the effects of market volatilities on GM and China Mengniu 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 Mengniu. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and China Mengniu.
Diversification Opportunities for GM and China Mengniu
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and China is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and China Mengniu Dairy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Mengniu Dairy 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 Mengniu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Mengniu Dairy has no effect on the direction of GM i.e., GM and China Mengniu go up and down completely randomly.
Pair Corralation between GM and China Mengniu
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.72 times more return on investment than China Mengniu. However, General Motors is 1.4 times less risky than China Mengniu. It trades about 0.05 of its potential returns per unit of risk. China Mengniu Dairy is currently generating about -0.03 per unit of risk. If you would invest 3,757 in General Motors on August 30, 2024 and sell it today you would earn a total of 1,793 from holding General Motors or generate 47.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
General Motors vs. China Mengniu Dairy
Performance |
| Timeline |
| General Motors |
| China Mengniu Dairy |
GM and China Mengniu Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and China Mengniu
The main advantage of trading using opposite GM and China Mengniu positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, China Mengniu 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 Mengniu will offset losses from the drop in China Mengniu's long position.The idea behind General Motors and China Mengniu Dairy 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 Mengniu vs. Nestle SA ADR | China Mengniu vs. ConAgra Foods | China Mengniu vs. Hormel Foods | China Mengniu vs. Kraft Heinz Co |
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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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