Correlation Between GM and Xinjiang Daqo

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

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

Diversification Opportunities for GM and Xinjiang Daqo

0.55

Correlation Coefficient

GM  Xinjiang Daqo

Very weak diversification

The 3 months correlation between GM and Xinjiang is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Xinjiang Daqo New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xinjiang Daqo New 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 Xinjiang Daqo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xinjiang Daqo New has no effect on the direction of GM i.e., GM and Xinjiang Daqo go up and down completely randomly.

Pair Corralation between GM and Xinjiang Daqo

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.31 times more return on investment than Xinjiang Daqo. However, GM is 1.31 times more volatile than Xinjiang Daqo New. It trades about -0.08 of its potential returns per unit of risk. Xinjiang Daqo New is currently generating about -0.3 per unit of risk. If you would invest  5,475  in General Motors on September 21, 2024 and sell it today you would lose (294.00) from holding General Motors or give up 5.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

General Motors  vs.  Xinjiang Daqo New

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Xinjiang Daqo New

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xinjiang Daqo New are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xinjiang Daqo sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Xinjiang Daqo

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

The idea behind General Motors and Xinjiang Daqo New 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.