Correlation Between GM and Oriental Culture

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

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

Diversification Opportunities for GM and Oriental Culture

0.26

Correlation Coefficient

GM  Oriental Culture

Modest diversification

The 3 months correlation between GM and Oriental is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Oriental Culture Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oriental Culture Holding 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 Oriental Culture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oriental Culture Holding has no effect on the direction of GM i.e., GM and Oriental Culture go up and down completely randomly.

Pair Corralation between GM and Oriental Culture

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.31 times more return on investment than Oriental Culture. However, General Motors is 3.24 times less risky than Oriental Culture. It trades about 0.05 of its potential returns per unit of risk. Oriental Culture Holding is currently generating about -0.01 per unit of risk. If you would invest  3,805  in General Motors on September 3, 2024 and sell it today you would earn a total of  1,754  from holding General Motors or generate 46.1% return on investment over 90 days.

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

General Motors  vs.  Oriental Culture Holding

General Motors

Risk-Adjusted Performance

7 of 100

OK

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.

Oriental Culture Holding

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oriental Culture Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Oriental Culture reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Oriental Culture

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

The idea behind General Motors and Oriental Culture Holding 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.