Correlation Between GM and City National
Can any of the company-specific risk be diversified away by investing in both GM and City National 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 City National into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and City National Rochdale, you can compare the effects of market volatilities on GM and City National 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 City National. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and City National.
Diversification Opportunities for GM and City National
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between GM and City is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and City National Rochdale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City National Rochdale 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 City National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City National Rochdale has no effect on the direction of GM i.e., GM and City National go up and down completely randomly.
Pair Corralation between GM and City National
Allowing for the 90-day total investment horizon General Motors is expected to generate 18.62 times more return on investment than City National. However, GM is 18.62 times more volatile than City National Rochdale. It trades about 0.08 of its potential returns per unit of risk. City National Rochdale is currently generating about 0.12 per unit of risk. If you would invest 4,483 in General Motors on September 3, 2024 and sell it today you would earn a total of 1,076 from holding General Motors or generate 24.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. City National Rochdale
Performance |
| Timeline |
| General Motors |
| City National Rochdale |
GM and City National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and City National
The main advantage of trading using opposite GM and City National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, City National 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 City National will offset losses from the drop in City National's long position.The idea behind General Motors and City National Rochdale 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.| City National vs. Fundvantage Trust | City National vs. Kinetics Market Opportunities | City National vs. Massmutual Select Diversified | City National vs. Templeton Developing Markets |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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