Correlation Between GM and National Bankshares

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

Diversification Opportunities for GM and National Bankshares

0.79

Correlation Coefficient

GM  National Bankshares

Poor diversification

The 3 months correlation between GM and National is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and National Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bankshares 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 Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bankshares has no effect on the direction of GM i.e., GM and National Bankshares go up and down completely randomly.

Pair Corralation between GM and National Bankshares

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.14 times more return on investment than National Bankshares. However, GM is 1.14 times more volatile than National Bankshares. It trades about 0.1 of its potential returns per unit of risk. National Bankshares is currently generating about 0.11 per unit of risk. If you would invest  4,829  in General Motors on August 31, 2024 and sell it today you would earn a total of  721.00  from holding General Motors or generate 14.93% return on investment over 90 days.

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

General Motors  vs.  National Bankshares

General Motors

Risk-Adjusted Performance

7 of 100

Modest

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 Bankshares

Risk-Adjusted Performance

8 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in National Bankshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, National Bankshares demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and National Bankshares

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

The idea behind General Motors and National Bankshares 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.