Correlation Between GM and Song Hong
Can any of the company-specific risk be diversified away by investing in both GM and Song Hong 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 Song Hong into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Song Hong Construction, you can compare the effects of market volatilities on GM and Song Hong 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 Song Hong. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Song Hong.
Diversification Opportunities for GM and Song Hong
Excellent diversification
The 3 months correlation between GM and Song is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Song Hong Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Song Hong Construction 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 Song Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Song Hong Construction has no effect on the direction of GM i.e., GM and Song Hong go up and down completely randomly.
Pair Corralation between GM and Song Hong
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.82 times more return on investment than Song Hong. However, General Motors is 1.22 times less risky than Song Hong. It trades about 0.16 of its potential returns per unit of risk. Song Hong Construction is currently generating about 0.1 per unit of risk. If you would invest 5,096 in General Motors on September 2, 2024 and sell it today you would earn a total of 463.00 from holding General Motors or generate 9.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 76.19% |
| Values | Daily Returns |
General Motors vs. Song Hong Construction
Performance |
| Timeline |
| General Motors |
| Song Hong Construction |
GM and Song Hong Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Song Hong
The main advantage of trading using opposite GM and Song Hong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Song Hong 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 Song Hong will offset losses from the drop in Song Hong's long position.The idea behind General Motors and Song Hong Construction 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.| Song Hong vs. FIT INVEST JSC | Song Hong vs. Damsan JSC | Song Hong vs. An Phat Plastic | Song Hong vs. Alphanam ME |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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