Correlation Between GM and National Bank

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

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

Diversification Opportunities for GM and National Bank

-0.57

Correlation Coefficient

GM  National Bank

Excellent diversification

The 3 months correlation between GM and National is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and National Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank has no effect on the direction of GM i.e., GM and National Bank go up and down completely randomly.

Pair Corralation between GM and National Bank

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.52 times more return on investment than National Bank. However, General Motors is 1.91 times less risky than National Bank. It trades about -0.05 of its potential returns per unit of risk. National Bank of is currently generating about -0.03 per unit of risk. If you would invest  5,271  in General Motors on October 8, 2024 and sell it today you would lose (94.00) from holding General Motors or give up 1.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

General Motors  vs.  National Bank of

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.

National Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank of are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, National Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and National Bank

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

The idea behind General Motors and National Bank of 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.