Correlation Between GM and Kid ASA
Can any of the company-specific risk be diversified away by investing in both GM and Kid ASA 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 Kid ASA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Kid ASA, you can compare the effects of market volatilities on GM and Kid ASA 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 Kid ASA. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Kid ASA.
Diversification Opportunities for GM and Kid ASA
Pay attention - limited upside
The 3 months correlation between GM and Kid is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Kid ASA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kid ASA 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 Kid ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kid ASA has no effect on the direction of GM i.e., GM and Kid ASA go up and down completely randomly.
Pair Corralation between GM and Kid ASA
Allowing for the 90-day total investment horizon GM is expected to generate 1.21 times less return on investment than Kid ASA. But when comparing it to its historical volatility, General Motors is 1.01 times less risky than Kid ASA. It trades about 0.07 of its potential returns per unit of risk. Kid ASA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 7,361 in Kid ASA on September 1, 2024 and sell it today you would earn a total of 5,419 from holding Kid ASA or generate 73.62% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 98.94% |
| Values | Daily Returns |
General Motors vs. Kid ASA
Performance |
| Timeline |
| General Motors |
| Kid ASA |
GM and Kid ASA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Kid ASA
The main advantage of trading using opposite GM and Kid ASA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Kid ASA 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 Kid ASA will offset losses from the drop in Kid ASA's long position.The idea behind General Motors and Kid ASA 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.| Kid ASA vs. Europris ASA | Kid ASA vs. Selvaag Bolig ASA | Kid ASA vs. Storebrand ASA | Kid ASA vs. Kitron ASA |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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