Correlation Between GM and China Mobile

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

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

Diversification Opportunities for GM and China Mobile

-0.32

Correlation Coefficient

GM  China Mobile

Very good diversification

The 3 months correlation between GM and China is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance 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 China Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of GM i.e., GM and China Mobile go up and down completely randomly.

Pair Corralation between GM and China Mobile

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the China Mobile. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.25 times less risky than China Mobile. The stock trades about -0.1 of its potential returns per unit of risk. The China Life Insurance is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  173.00  in China Life Insurance on December 4, 2024 and sell it today you would earn a total of  10.00  from holding China Life Insurance or generate 5.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  China Life Insurance

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

China Life Insurance

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Life Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, China Mobile is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and China Mobile

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

The idea behind General Motors and China Life Insurance 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.