Correlation Between GM and Pakistan Synthetics
Can any of the company-specific risk be diversified away by investing in both GM and Pakistan Synthetics 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 Pakistan Synthetics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Pakistan Synthetics, you can compare the effects of market volatilities on GM and Pakistan Synthetics 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 Pakistan Synthetics. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Pakistan Synthetics.
Diversification Opportunities for GM and Pakistan Synthetics
0.01 | Correlation Coefficient |
Significant diversification
The 3 months correlation between GM and Pakistan is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Pakistan Synthetics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pakistan Synthetics 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 Pakistan Synthetics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pakistan Synthetics has no effect on the direction of GM i.e., GM and Pakistan Synthetics go up and down completely randomly.
Pair Corralation between GM and Pakistan Synthetics
Allowing for the 90-day total investment horizon GM is expected to generate 1.44 times less return on investment than Pakistan Synthetics. But when comparing it to its historical volatility, General Motors is 1.06 times less risky than Pakistan Synthetics. It trades about 0.17 of its potential returns per unit of risk. Pakistan Synthetics is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 2,521 in Pakistan Synthetics on September 1, 2024 and sell it today you would earn a total of 379.00 from holding Pakistan Synthetics or generate 15.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. Pakistan Synthetics
Performance |
| Timeline |
| General Motors |
| Pakistan Synthetics |
GM and Pakistan Synthetics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Pakistan Synthetics
The main advantage of trading using opposite GM and Pakistan Synthetics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Pakistan Synthetics 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 Pakistan Synthetics will offset losses from the drop in Pakistan Synthetics' long position.The idea behind General Motors and Pakistan Synthetics 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.| Pakistan Synthetics vs. Masood Textile Mills | Pakistan Synthetics vs. Fauji Foods | Pakistan Synthetics vs. KSB Pumps | Pakistan Synthetics vs. Mari Petroleum |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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