Correlation Between GM and Shenzhen New

Can any of the company-specific risk be diversified away by investing in both GM and Shenzhen New 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 Shenzhen New into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between General Motors and Shenzhen New Nanshan, you can compare the effects of market volatilities on GM and Shenzhen New 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 Shenzhen New. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Shenzhen New.

Diversification Opportunities for GM and Shenzhen New

0.38

Correlation Coefficient

GM  Shenzhen New

Weak diversification

The 3 months correlation between GM and Shenzhen is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Shenzhen New Nanshan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen New Nanshan 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 Shenzhen New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen New Nanshan has no effect on the direction of GM i.e., GM and Shenzhen New go up and down completely randomly.

Pair Corralation between GM and Shenzhen New

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Shenzhen New. In addition to that, GM is 1.28 times more volatile than Shenzhen New Nanshan. It trades about -0.03 of its total potential returns per unit of risk. Shenzhen New Nanshan is currently generating about 0.0 per unit of volatility. If you would invest  250.00  in Shenzhen New Nanshan on December 21, 2024 and sell it today you would lose (4.00) from holding Shenzhen New Nanshan or give up 1.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.67%
Values	Daily Returns

General Motors  vs.  Shenzhen New Nanshan

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Shenzhen New Nanshan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Shenzhen New Nanshan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Shenzhen New is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Shenzhen New

The main advantage of trading using opposite GM and Shenzhen New positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Shenzhen New 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 Shenzhen New will offset losses from the drop in Shenzhen New's long position.

The idea behind General Motors and Shenzhen New Nanshan 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.

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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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.