Correlation Between GM and NATIONAL INVESTMENT

Can any of the company-specific risk be diversified away by investing in both GM and NATIONAL INVESTMENT 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 INVESTMENT 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 INVESTMENT TRUST, you can compare the effects of market volatilities on GM and NATIONAL INVESTMENT 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 INVESTMENT. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and NATIONAL INVESTMENT.

Diversification Opportunities for GM and NATIONAL INVESTMENT

0.14

Correlation Coefficient

GM  NATIONAL INVESTMENT

Average diversification

The 3 months correlation between GM and NATIONAL is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and NATIONAL INVESTMENT TRUST in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NATIONAL INVESTMENT TRUST 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 INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NATIONAL INVESTMENT TRUST has no effect on the direction of GM i.e., GM and NATIONAL INVESTMENT go up and down completely randomly.

Pair Corralation between GM and NATIONAL INVESTMENT

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the NATIONAL INVESTMENT. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.12 times less risky than NATIONAL INVESTMENT. The stock trades about -0.07 of its potential returns per unit of risk. The NATIONAL INVESTMENT TRUST is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,040  in NATIONAL INVESTMENT TRUST on December 27, 2024 and sell it today you would lose (40.00) from holding NATIONAL INVESTMENT TRUST or give up 3.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.08%
Values	Daily Returns

General Motors  vs.  NATIONAL INVESTMENT TRUST

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

NATIONAL INVESTMENT TRUST

Risk-Adjusted Performance

Very Weak

Over the last 90 days NATIONAL INVESTMENT TRUST has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, NATIONAL INVESTMENT is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM and NATIONAL INVESTMENT

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

The idea behind General Motors and NATIONAL INVESTMENT TRUST 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.