Correlation Between GM and Good Life

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

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

Diversification Opportunities for GM and Good Life

0.0

Correlation Coefficient

GM  Good Life

Pay attention - limited upside

The 3 months correlation between GM and Good is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Good Life China in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Good Life China 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 Good Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Good Life China has no effect on the direction of GM i.e., GM and Good Life go up and down completely randomly.

Pair Corralation between GM and Good Life

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Good Life. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 50.27 times less risky than Good Life. The stock trades about -0.02 of its potential returns per unit of risk. The Good Life China is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  0.00  in Good Life China on December 17, 2024 and sell it today you would earn a total of  3,260  from holding Good Life China or generate 9.223372036854776E16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

General Motors  vs.  Good Life China

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.

Good Life China

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Good Life China are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Good Life exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Good Life

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

The idea behind General Motors and Good Life China 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..