Correlation Between GM and Cathay Pacific
Can any of the company-specific risk be diversified away by investing in both GM and Cathay Pacific 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 Cathay Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Cathay Pacific Airways, you can compare the effects of market volatilities on GM and Cathay Pacific 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 Cathay Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Cathay Pacific.
Diversification Opportunities for GM and Cathay Pacific
-0.78 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between GM and Cathay is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Cathay Pacific Airways in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cathay Pacific Airways 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 Cathay Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cathay Pacific Airways has no effect on the direction of GM i.e., GM and Cathay Pacific go up and down completely randomly.
Pair Corralation between GM and Cathay Pacific
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.85 times more return on investment than Cathay Pacific. However, General Motors is 1.18 times less risky than Cathay Pacific. It trades about 0.07 of its potential returns per unit of risk. Cathay Pacific Airways is currently generating about 0.01 per unit of risk. If you would invest 3,574 in General Motors on September 1, 2024 and sell it today you would earn a total of 1,985 from holding General Motors or generate 55.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 49.73% |
| Values | Daily Returns |
General Motors vs. Cathay Pacific Airways
Performance |
| Timeline |
| General Motors |
| Cathay Pacific Airways |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Solid
GM and Cathay Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Cathay Pacific
The main advantage of trading using opposite GM and Cathay Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Cathay Pacific 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 Cathay Pacific will offset losses from the drop in Cathay Pacific's long position.The idea behind General Motors and Cathay Pacific Airways 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.| Cathay Pacific vs. Finnair Oyj | Cathay Pacific vs. easyJet plc | Cathay Pacific vs. Norse Atlantic ASA | Cathay Pacific vs. Air New Zealand |
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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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