Correlation Between GM and CITIC

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

By analyzing existing cross correlation between General Motors and CITIC LTD ADR5, you can compare the effects of market volatilities on GM and CITIC 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 CITIC. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and CITIC.

Diversification Opportunities for GM and CITIC

0.38

Correlation Coefficient

GM  CITIC

Weak diversification

The 3 months correlation between GM and CITIC is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CITIC LTD ADR5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC LTD ADR5 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 CITIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC LTD ADR5 has no effect on the direction of GM i.e., GM and CITIC go up and down completely randomly.

Pair Corralation between GM and CITIC

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the CITIC. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.01 times less risky than CITIC. The stock trades about -0.09 of its potential returns per unit of risk. The CITIC LTD ADR5 is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  520.00  in CITIC LTD ADR5 on October 10, 2024 and sell it today you would lose (15.00) from holding CITIC LTD ADR5 or give up 2.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.95%
Values	Daily Returns

General Motors  vs.  CITIC LTD ADR5

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 February 2025.

CITIC LTD ADR5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CITIC LTD ADR5 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, CITIC is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and CITIC

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

The idea behind General Motors and CITIC LTD ADR5 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.