Correlation Between GM and Tacheng Real

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

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

Diversification Opportunities for GM and Tacheng Real

0.3

Correlation Coefficient

GM  Tacheng Real

Weak diversification

The 3 months correlation between GM and Tacheng is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Tacheng Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tacheng Real Estate 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 Tacheng Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tacheng Real Estate has no effect on the direction of GM i.e., GM and Tacheng Real go up and down completely randomly.

Pair Corralation between GM and Tacheng Real

Allowing for the 90-day total investment horizon GM is expected to generate 1.61 times less return on investment than Tacheng Real. But when comparing it to its historical volatility, General Motors is 1.59 times less risky than Tacheng Real. It trades about 0.05 of its potential returns per unit of risk. Tacheng Real Estate is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,330  in Tacheng Real Estate on September 20, 2024 and sell it today you would earn a total of  770.00  from holding Tacheng Real Estate or generate 23.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Tacheng Real Estate

General Motors

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Tacheng Real Estate

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tacheng Real Estate are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Tacheng Real is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with GM and Tacheng Real

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

The idea behind General Motors and Tacheng Real Estate 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..