Correlation Between GM and Network CN
Can any of the company-specific risk be diversified away by investing in both GM and Network CN 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 Network CN into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Network CN, you can compare the effects of market volatilities on GM and Network CN 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 Network CN. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Network CN.
Diversification Opportunities for GM and Network CN
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between GM and Network is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Network CN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Network CN 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 Network CN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Network CN has no effect on the direction of GM i.e., GM and Network CN go up and down completely randomly.
Pair Corralation between GM and Network CN
Allowing for the 90-day total investment horizon GM is expected to generate 305.3 times less return on investment than Network CN. But when comparing it to its historical volatility, General Motors is 79.43 times less risky than Network CN. It trades about 0.07 of its potential returns per unit of risk. Network CN is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 70.00 in Network CN on August 29, 2024 and sell it today you would lose (5.00) from holding Network CN or give up 7.14% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Network CN
Performance |
| Timeline |
| General Motors |
| Network CN |
GM and Network CN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Network CN
The main advantage of trading using opposite GM and Network CN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Network CN 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 Network CN will offset losses from the drop in Network CN's long position.The idea behind General Motors and Network CN 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.| Network CN vs. Lifevantage | Network CN vs. Enersys | Network CN vs. Where Food Comes | Network CN vs. WT Offshore |
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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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