Correlation Between GM and 1st NRG
Can any of the company-specific risk be diversified away by investing in both GM and 1st NRG 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 1st NRG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and 1st NRG Corp, you can compare the effects of market volatilities on GM and 1st NRG 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 1st NRG. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and 1st NRG.
Diversification Opportunities for GM and 1st NRG
Pay attention - limited upside
The 3 months correlation between GM and 1st is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and 1st NRG Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1st NRG Corp 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 1st NRG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1st NRG Corp has no effect on the direction of GM i.e., GM and 1st NRG go up and down completely randomly.
Pair Corralation between GM and 1st NRG
Allowing for the 90-day total investment horizon GM is expected to generate 18.46 times less return on investment than 1st NRG. But when comparing it to its historical volatility, General Motors is 21.53 times less risky than 1st NRG. It trades about 0.05 of its potential returns per unit of risk. 1st NRG Corp is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 0.01 in 1st NRG Corp on September 3, 2024 and sell it today you would earn a total of 0.00 from holding 1st NRG Corp or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Flat |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. 1st NRG Corp
Performance |
| Timeline |
| General Motors |
| 1st NRG Corp |
GM and 1st NRG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and 1st NRG
The main advantage of trading using opposite GM and 1st NRG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, 1st NRG 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 1st NRG will offset losses from the drop in 1st NRG's long position.The idea behind General Motors and 1st NRG Corp 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.| 1st NRG vs. CNX Resources Corp | 1st NRG vs. MV Oil Trust | 1st NRG vs. San Juan Basin | 1st NRG vs. VOC Energy Trust |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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