Correlation Between Autohome and General Motors

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

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

Diversification Opportunities for Autohome and General Motors

-0.23

Correlation Coefficient

Autohome  General Motors

Very good diversification

The 3 months correlation between Autohome and General is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Autohome and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Autohome 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 Autohome are associated (or correlated) with General Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Autohome i.e., Autohome and General Motors go up and down completely randomly.

Pair Corralation between Autohome and General Motors

Assuming the 90 days trading horizon Autohome is expected to generate 2.0 times less return on investment than General Motors. But when comparing it to its historical volatility, Autohome is 1.33 times less risky than General Motors. It trades about 0.09 of its potential returns per unit of risk. General Motors is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  6,477  in General Motors on September 12, 2024 and sell it today you would earn a total of  1,642  from holding General Motors or generate 25.35% return on investment over 90 days.

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

Autohome  vs.  General Motors

Autohome

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Autohome are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Autohome sustained solid returns over the last few months and may actually be approaching a breakup point.

General Motors

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, General Motors sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Autohome and General Motors

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

The idea behind Autohome and General Motors 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 Anywhere module to track or share privately all of your investments from the convenience of any device.