Correlation Between GM and Xian International

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

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

Diversification Opportunities for GM and Xian International

0.54

Correlation Coefficient

GM  Xian International

Very weak diversification

The 3 months correlation between GM and Xian is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Xian International Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xian International 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 Xian International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xian International has no effect on the direction of GM i.e., GM and Xian International go up and down completely randomly.

Pair Corralation between GM and Xian International

Allowing for the 90-day total investment horizon GM is expected to generate 4.14 times less return on investment than Xian International. But when comparing it to its historical volatility, General Motors is 1.56 times less risky than Xian International. It trades about 0.07 of its potential returns per unit of risk. Xian International Medical is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  411.00  in Xian International Medical on September 17, 2024 and sell it today you would earn a total of  202.00  from holding Xian International Medical or generate 49.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	92.31%
Values	Daily Returns

General Motors  vs.  Xian International Medical

General Motors

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 5 (%) 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.

Xian International

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xian International Medical are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Xian International sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Xian International

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

The idea behind General Motors and Xian International Medical 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.