Correlation Between GM and Hai An
Can any of the company-specific risk be diversified away by investing in both GM and Hai An 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 Hai An into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Hai An Transport, you can compare the effects of market volatilities on GM and Hai An 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 Hai An. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Hai An.
Diversification Opportunities for GM and Hai An
Very poor diversification
The 3 months correlation between GM and Hai is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Hai An Transport in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hai An Transport 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 Hai An. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hai An Transport has no effect on the direction of GM i.e., GM and Hai An go up and down completely randomly.
Pair Corralation between GM and Hai An
Allowing for the 90-day total investment horizon GM is expected to generate 1.45 times less return on investment than Hai An. But when comparing it to its historical volatility, General Motors is 1.22 times less risky than Hai An. It trades about 0.07 of its potential returns per unit of risk. Hai An Transport is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 2,484,058 in Hai An Transport on August 31, 2024 and sell it today you would earn a total of 2,280,942 from holding Hai An Transport or generate 91.82% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.47% |
| Values | Daily Returns |
General Motors vs. Hai An Transport
Performance |
| Timeline |
| General Motors |
| Hai An Transport |
GM and Hai An Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Hai An
The main advantage of trading using opposite GM and Hai An positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Hai An 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 Hai An will offset losses from the drop in Hai An's long position.The idea behind General Motors and Hai An Transport 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.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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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