Correlation Between GM and Nio

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

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

Diversification Opportunities for GM and Nio

0.5

Correlation Coefficient

GM  Nio

Very weak diversification

The 3 months correlation between GM and Nio is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Nio Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nio Class A 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 Nio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nio Class A has no effect on the direction of GM i.e., GM and Nio go up and down completely randomly.

Pair Corralation between GM and Nio

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Nio. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.64 times less risky than Nio. The stock trades about -0.13 of its potential returns per unit of risk. The Nio Class A is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  448.00  in Nio Class A on November 28, 2024 and sell it today you would lose (21.00) from holding Nio Class A or give up 4.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Nio Class A

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 weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Nio Class A

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nio Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Nio is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with GM and Nio

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

The idea behind General Motors and Nio Class A 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.