Correlation Between GM and China Resources

Can any of the company-specific risk be diversified away by investing in both GM and China Resources 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 Resources 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 Resources Land, you can compare the effects of market volatilities on GM and China Resources 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 Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and China Resources.

Diversification Opportunities for GM and China Resources

-0.66

Correlation Coefficient

GM  China Resources

Excellent diversification

The 3 months correlation between GM and China is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and China Resources Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Land 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 Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Land has no effect on the direction of GM i.e., GM and China Resources go up and down completely randomly.

Pair Corralation between GM and China Resources

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the China Resources. In addition to that, GM is 1.04 times more volatile than China Resources Land. It trades about -0.02 of its total potential returns per unit of risk. China Resources Land is currently generating about 0.08 per unit of volatility. If you would invest  272.00  in China Resources Land on December 23, 2024 and sell it today you would earn a total of  28.00  from holding China Resources Land or generate 10.29% return on investment over 90 days.

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

General Motors  vs.  China Resources Land

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.

China Resources Land

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Land are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Resources may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with GM and China Resources

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

The idea behind General Motors and China Resources Land 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.