Correlation Between GM and Country Garden

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

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

Diversification Opportunities for GM and Country Garden

0.7

Correlation Coefficient

GM  Country Garden

Poor diversification

The 3 months correlation between GM and Country is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Country Garden Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Country Garden Holdings 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 Country Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Country Garden Holdings has no effect on the direction of GM i.e., GM and Country Garden go up and down completely randomly.

Pair Corralation between GM and Country Garden

Allowing for the 90-day total investment horizon GM is expected to generate 2.41 times less return on investment than Country Garden. But when comparing it to its historical volatility, General Motors is 4.51 times less risky than Country Garden. It trades about 0.04 of its potential returns per unit of risk. Country Garden Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  866.00  in Country Garden Holdings on September 4, 2024 and sell it today you would lose (491.00) from holding Country Garden Holdings or give up 56.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.78%
Values	Daily Returns

General Motors  vs.  Country Garden Holdings

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Country Garden Holdings

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Country Garden Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Country Garden showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Country Garden

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

The idea behind General Motors and Country Garden Holdings 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.