Correlation Between GM and TAL Education
Can any of the company-specific risk be diversified away by investing in both GM and TAL Education 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 TAL Education into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and TAL Education Group, you can compare the effects of market volatilities on GM and TAL Education 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 TAL Education. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and TAL Education.
Diversification Opportunities for GM and TAL Education
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between GM and TAL is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and TAL Education Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TAL Education Group 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 TAL Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TAL Education Group has no effect on the direction of GM i.e., GM and TAL Education go up and down completely randomly.
Pair Corralation between GM and TAL Education
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.53 times more return on investment than TAL Education. However, General Motors is 1.88 times less risky than TAL Education. It trades about 0.24 of its potential returns per unit of risk. TAL Education Group is currently generating about -0.01 per unit of risk. If you would invest 5,292 in General Motors on August 24, 2024 and sell it today you would earn a total of 561.00 from holding General Motors or generate 10.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. TAL Education Group
Performance |
| Timeline |
| General Motors |
| TAL Education Group |
GM and TAL Education Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and TAL Education
The main advantage of trading using opposite GM and TAL Education positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, TAL Education 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 TAL Education will offset losses from the drop in TAL Education's long position.The idea behind General Motors and TAL Education Group 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.| TAL Education vs. Apple Inc | TAL Education vs. Apple Inc | TAL Education vs. Apple Inc | TAL Education vs. Apple Inc |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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