Correlation Between GM and Khyber Tobacco
Can any of the company-specific risk be diversified away by investing in both GM and Khyber Tobacco 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 Khyber Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Khyber Tobacco, you can compare the effects of market volatilities on GM and Khyber Tobacco 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 Khyber Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Khyber Tobacco.
Diversification Opportunities for GM and Khyber Tobacco
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and Khyber is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Khyber Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Khyber Tobacco 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 Khyber Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Khyber Tobacco has no effect on the direction of GM i.e., GM and Khyber Tobacco go up and down completely randomly.
Pair Corralation between GM and Khyber Tobacco
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.5 times more return on investment than Khyber Tobacco. However, General Motors is 2.01 times less risky than Khyber Tobacco. It trades about 0.07 of its potential returns per unit of risk. Khyber Tobacco is currently generating about -0.21 per unit of risk. If you would invest 5,180 in General Motors on September 5, 2024 and sell it today you would earn a total of 186.00 from holding General Motors or generate 3.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 77.27% |
| Values | Daily Returns |
General Motors vs. Khyber Tobacco
Performance |
| Timeline |
| General Motors |
| Khyber Tobacco |
GM and Khyber Tobacco Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Khyber Tobacco
The main advantage of trading using opposite GM and Khyber Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Khyber Tobacco 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 Khyber Tobacco will offset losses from the drop in Khyber Tobacco's long position.The idea behind General Motors and Khyber Tobacco 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.| Khyber Tobacco vs. Habib Insurance | Khyber Tobacco vs. Pakistan Refinery | Khyber Tobacco vs. Century Insurance | Khyber Tobacco vs. Reliance Weaving Mills |
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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.
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