Correlation Between GM and China Rare
Can any of the company-specific risk be diversified away by investing in both GM and China Rare 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 Rare 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 Rare Earth, you can compare the effects of market volatilities on GM and China Rare 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 Rare. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and China Rare.
Diversification Opportunities for GM and China Rare
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and China is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and China Rare Earth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Rare Earth 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 Rare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Rare Earth has no effect on the direction of GM i.e., GM and China Rare go up and down completely randomly.
Pair Corralation between GM and China Rare
Allowing for the 90-day total investment horizon GM is expected to generate 9.65 times less return on investment than China Rare. But when comparing it to its historical volatility, General Motors is 10.33 times less risky than China Rare. It trades about 0.08 of its potential returns per unit of risk. China Rare Earth is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 5.00 in China Rare Earth on August 26, 2024 and sell it today you would earn a total of 0.00 from holding China Rare Earth or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. China Rare Earth
Performance |
| Timeline |
| General Motors |
| China Rare Earth |
GM and China Rare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and China Rare
The main advantage of trading using opposite GM and China Rare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, China Rare 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 Rare will offset losses from the drop in China Rare's long position.The idea behind General Motors and China Rare Earth 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 Rare vs. Norra Metals Corp | China Rare vs. ZincX Resources Corp | China Rare vs. Nuinsco Resources Limited | China Rare vs. Mundoro Capital |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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