Correlation Between GM and NEXG11
Can any of the company-specific risk be diversified away by investing in both GM and NEXG11 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 NEXG11 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and NEXG11, you can compare the effects of market volatilities on GM and NEXG11 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 NEXG11. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and NEXG11.
Diversification Opportunities for GM and NEXG11
Very weak diversification
The 3 months correlation between GM and NEXG11 is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and NEXG11 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXG11 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 NEXG11. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXG11 has no effect on the direction of GM i.e., GM and NEXG11 go up and down completely randomly.
Pair Corralation between GM and NEXG11
Allowing for the 90-day total investment horizon General Motors is expected to generate 5.5 times more return on investment than NEXG11. However, GM is 5.5 times more volatile than NEXG11. It trades about 0.1 of its potential returns per unit of risk. NEXG11 is currently generating about 0.33 per unit of risk. If you would invest 2,863 in General Motors on September 19, 2024 and sell it today you would earn a total of 2,136 from holding General Motors or generate 74.61% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 90.34% |
Values | Daily Returns |
General Motors vs. NEXG11
Performance |
Timeline |
General Motors |
NEXG11 |
GM and NEXG11 Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GM and NEXG11
The main advantage of trading using opposite GM and NEXG11 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, NEXG11 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 NEXG11 will offset losses from the drop in NEXG11's long position.The idea behind General Motors and NEXG11 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.NEXG11 vs. Brpr Corporate Offices | NEXG11 vs. Telecomunicaes Brasileiras SA | NEXG11 vs. Multilaser Industrial SA | NEXG11 vs. Ross Stores |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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