Correlation Between GM and Neste Oyj
Can any of the company-specific risk be diversified away by investing in both GM and Neste Oyj 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 Neste Oyj into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Neste Oyj, you can compare the effects of market volatilities on GM and Neste Oyj 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 Neste Oyj. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Neste Oyj.
Diversification Opportunities for GM and Neste Oyj
Excellent diversification
The 3 months correlation between GM and Neste is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Neste Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neste Oyj 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 Neste Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neste Oyj has no effect on the direction of GM i.e., GM and Neste Oyj go up and down completely randomly.
Pair Corralation between GM and Neste Oyj
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.89 times more return on investment than Neste Oyj. However, General Motors is 1.13 times less risky than Neste Oyj. It trades about 0.07 of its potential returns per unit of risk. Neste Oyj is currently generating about -0.06 per unit of risk. If you would invest 5,273 in General Motors on August 29, 2024 and sell it today you would earn a total of 206.00 from holding General Motors or generate 3.91% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Neste Oyj
Performance |
| Timeline |
| General Motors |
| Neste Oyj |
GM and Neste Oyj Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Neste Oyj
The main advantage of trading using opposite GM and Neste Oyj positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Neste Oyj 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 Neste Oyj will offset losses from the drop in Neste Oyj's long position.The idea behind General Motors and Neste Oyj 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.| Neste Oyj vs. UNITED UTILITIES GR | Neste Oyj vs. Lion One Metals | Neste Oyj vs. Kaiser Aluminum | Neste Oyj vs. NAKED WINES PLC |
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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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