Correlation Between GM and Northern Star

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

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

Diversification Opportunities for GM and Northern Star

0.13

Correlation Coefficient

GM  Northern Star

Average diversification

The 3 months correlation between GM and Northern is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Northern Star Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Star Resources 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 Northern Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Star Resources has no effect on the direction of GM i.e., GM and Northern Star go up and down completely randomly.

Pair Corralation between GM and Northern Star

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Northern Star. In addition to that, GM is 1.08 times more volatile than Northern Star Resources. It trades about -0.08 of its total potential returns per unit of risk. Northern Star Resources is currently generating about 0.5 per unit of volatility. If you would invest  915.00  in Northern Star Resources on October 22, 2024 and sell it today you would earn a total of  126.00  from holding Northern Star Resources or generate 13.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	84.21%
Values	Daily Returns

General Motors  vs.  Northern Star Resources

General Motors

Risk-Adjusted Performance

0 of 100

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Northern Star Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Star Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Northern Star is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and Northern Star

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

The idea behind General Motors and Northern Star Resources 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.