Correlation Between GM and Nike

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

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

Diversification Opportunities for GM and Nike

-0.5

Correlation Coefficient

GM  Nike

Very good diversification

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

Pair Corralation between GM and Nike

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Nike. In addition to that, GM is 1.65 times more volatile than Nike Inc. It trades about -0.12 of its total potential returns per unit of risk. Nike Inc is currently generating about 0.18 per unit of volatility. If you would invest  7,013  in Nike Inc on September 18, 2024 and sell it today you would earn a total of  420.00  from holding Nike Inc or generate 5.99% return on investment over 90 days.

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

General Motors  vs.  Nike Inc

General Motors

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) 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.

Nike Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nike Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Nike is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM and Nike

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

The idea behind General Motors and Nike Inc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.