Correlation Between GM and Netcare
Can any of the company-specific risk be diversified away by investing in both GM and Netcare 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 Netcare into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Netcare, you can compare the effects of market volatilities on GM and Netcare 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 Netcare. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Netcare.
Diversification Opportunities for GM and Netcare
Modest diversification
The 3 months correlation between GM and Netcare is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Netcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Netcare 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 Netcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Netcare has no effect on the direction of GM i.e., GM and Netcare go up and down completely randomly.
Pair Corralation between GM and Netcare
Allowing for the 90-day total investment horizon GM is expected to generate 1.12 times less return on investment than Netcare. In addition to that, GM is 1.57 times more volatile than Netcare. It trades about 0.08 of its total potential returns per unit of risk. Netcare is currently generating about 0.14 per unit of volatility. If you would invest 115,000 in Netcare on September 1, 2024 and sell it today you would earn a total of 33,000 from holding Netcare or generate 28.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.44% |
| Values | Daily Returns |
General Motors vs. Netcare
Performance |
| Timeline |
| General Motors |
| Netcare |
GM and Netcare Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Netcare
The main advantage of trading using opposite GM and Netcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Netcare 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 Netcare will offset losses from the drop in Netcare's long position.The idea behind General Motors and Netcare 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.| Netcare vs. HomeChoice Investments | Netcare vs. We Buy Cars | Netcare vs. Ascendis Health | Netcare vs. Astral Foods |
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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.
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