Correlation Between GM and Japan Post

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

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

Diversification Opportunities for GM and Japan Post

0.09

Correlation Coefficient

GM  Japan Post

Significant diversification

The 3 months correlation between GM and Japan is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Japan Post Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Post 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 Japan Post. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Post Holdings has no effect on the direction of GM i.e., GM and Japan Post go up and down completely randomly.

Pair Corralation between GM and Japan Post

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Japan Post. In addition to that, GM is 1.2 times more volatile than Japan Post Holdings. It trades about -0.01 of its total potential returns per unit of risk. Japan Post Holdings is currently generating about 0.15 per unit of volatility. If you would invest  986.00  in Japan Post Holdings on December 25, 2024 and sell it today you would earn a total of  197.00  from holding Japan Post Holdings or generate 19.98% return on investment over 90 days.

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

General Motors  vs.  Japan Post Holdings

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.

Japan Post Holdings

Risk-Adjusted Performance

Good

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

Pair Trading with GM and Japan Post

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

The idea behind General Motors and Japan Post 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.