Correlation Between GM and Asia Opportunity
Can any of the company-specific risk be diversified away by investing in both GM and Asia Opportunity 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 Asia Opportunity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Asia Opportunity Portfolio, you can compare the effects of market volatilities on GM and Asia Opportunity 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 Asia Opportunity. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Asia Opportunity.
Diversification Opportunities for GM and Asia Opportunity
0.14 | Correlation Coefficient |
Average diversification
The 3 months correlation between GM and Asia is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Asia Opportunity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Opportunity Por 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 Asia Opportunity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Opportunity Por has no effect on the direction of GM i.e., GM and Asia Opportunity go up and down completely randomly.
Pair Corralation between GM and Asia Opportunity
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.67 times more return on investment than Asia Opportunity. However, GM is 1.67 times more volatile than Asia Opportunity Portfolio. It trades about 0.06 of its potential returns per unit of risk. Asia Opportunity Portfolio is currently generating about 0.03 per unit of risk. If you would invest 3,263 in General Motors on September 16, 2024 and sell it today you would earn a total of 1,990 from holding General Motors or generate 60.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Asia Opportunity Portfolio
Performance |
| Timeline |
| General Motors |
| Asia Opportunity Por |
GM and Asia Opportunity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Asia Opportunity
The main advantage of trading using opposite GM and Asia Opportunity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Asia Opportunity 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 Asia Opportunity will offset losses from the drop in Asia Opportunity's long position.The idea behind General Motors and Asia Opportunity Portfolio 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.| Asia Opportunity vs. Emerging Markets Equity | Asia Opportunity vs. Global Fixed Income | Asia Opportunity vs. Global Fixed Income | Asia Opportunity vs. Global Fixed Income |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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