Correlation Between GM and CANADA RARE
Can any of the company-specific risk be diversified away by investing in both GM and CANADA RARE 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 CANADA RARE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and CANADA RARE EARTH, you can compare the effects of market volatilities on GM and CANADA RARE 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 CANADA RARE. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and CANADA RARE.
Diversification Opportunities for GM and CANADA RARE
0.03 | Correlation Coefficient |
Significant diversification
The 3 months correlation between GM and CANADA is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CANADA RARE EARTH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CANADA RARE EARTH 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 CANADA RARE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CANADA RARE EARTH has no effect on the direction of GM i.e., GM and CANADA RARE go up and down completely randomly.
Pair Corralation between GM and CANADA RARE
Allowing for the 90-day total investment horizon GM is expected to generate 49.88 times less return on investment than CANADA RARE. But when comparing it to its historical volatility, General Motors is 20.27 times less risky than CANADA RARE. It trades about 0.06 of its potential returns per unit of risk. CANADA RARE EARTH is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 1.70 in CANADA RARE EARTH on September 13, 2024 and sell it today you would lose (0.85) from holding CANADA RARE EARTH or give up 50.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.02% |
| Values | Daily Returns |
General Motors vs. CANADA RARE EARTH
Performance |
| Timeline |
| General Motors |
| CANADA RARE EARTH |
GM and CANADA RARE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and CANADA RARE
The main advantage of trading using opposite GM and CANADA RARE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, CANADA RARE 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 CANADA RARE will offset losses from the drop in CANADA RARE's long position.The idea behind General Motors and CANADA RARE EARTH 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.| CANADA RARE vs. China BlueChemical | CANADA RARE vs. AIR PRODCHEMICALS | CANADA RARE vs. Sanyo Chemical Industries | CANADA RARE vs. Waste Management |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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