Correlation Between GM and Industrial Nanotech

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

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

Diversification Opportunities for GM and Industrial Nanotech

-0.11

Correlation Coefficient

GM  Industrial Nanotech

Good diversification

The 3 months correlation between GM and Industrial is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Industrial Nanotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrial Nanotech 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 Industrial Nanotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrial Nanotech has no effect on the direction of GM i.e., GM and Industrial Nanotech go up and down completely randomly.

Pair Corralation between GM and Industrial Nanotech

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Industrial Nanotech. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 145.26 times less risky than Industrial Nanotech. The stock trades about -0.11 of its potential returns per unit of risk. The Industrial Nanotech is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Industrial Nanotech on September 17, 2024 and sell it today you would earn a total of  0.00  from holding Industrial Nanotech or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  Industrial Nanotech

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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 January 2025.

Industrial Nanotech

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Nanotech are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Industrial Nanotech disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Industrial Nanotech

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

The idea behind General Motors and Industrial Nanotech 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.

Check out your portfolio center.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.