Correlation Between GM and Newport Gold
Can any of the company-specific risk be diversified away by investing in both GM and Newport Gold 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 Newport Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Newport Gold, you can compare the effects of market volatilities on GM and Newport Gold 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 Newport Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Newport Gold.
Diversification Opportunities for GM and Newport Gold
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and Newport is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Newport Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newport Gold 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 Newport Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newport Gold has no effect on the direction of GM i.e., GM and Newport Gold go up and down completely randomly.
Pair Corralation between GM and Newport Gold
Allowing for the 90-day total investment horizon GM is expected to generate 23.65 times less return on investment than Newport Gold. But when comparing it to its historical volatility, General Motors is 12.16 times less risky than Newport Gold. It trades about 0.05 of its potential returns per unit of risk. Newport Gold is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 0.50 in Newport Gold on September 3, 2024 and sell it today you would lose (0.23) from holding Newport Gold or give up 46.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Newport Gold
Performance |
| Timeline |
| General Motors |
| Newport Gold |
GM and Newport Gold Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Newport Gold
The main advantage of trading using opposite GM and Newport Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Newport Gold 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 Newport Gold will offset losses from the drop in Newport Gold's long position.The idea behind General Motors and Newport Gold 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.| Newport Gold vs. Qubec Nickel Corp | Newport Gold vs. IGO Limited | Newport Gold vs. Avarone Metals | Newport Gold vs. Adriatic Metals 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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