Correlation Between GM and Sichuan Tianqi

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

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

Diversification Opportunities for GM and Sichuan Tianqi

0.78

Correlation Coefficient

GM  Sichuan Tianqi

Poor diversification

The 3 months correlation between GM and Sichuan is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Sichuan Tianqi Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sichuan Tianqi Lithium 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 Sichuan Tianqi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sichuan Tianqi Lithium has no effect on the direction of GM i.e., GM and Sichuan Tianqi go up and down completely randomly.

Pair Corralation between GM and Sichuan Tianqi

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.74 times more return on investment than Sichuan Tianqi. However, General Motors is 1.35 times less risky than Sichuan Tianqi. It trades about 0.05 of its potential returns per unit of risk. Sichuan Tianqi Lithium is currently generating about -0.04 per unit of risk. If you would invest  3,312  in General Motors on September 23, 2024 and sell it today you would earn a total of  1,869  from holding General Motors or generate 56.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.18%
Values	Daily Returns

General Motors  vs.  Sichuan Tianqi Lithium

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) 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.

Sichuan Tianqi Lithium

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sichuan Tianqi Lithium are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Sichuan Tianqi sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Sichuan Tianqi

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

The idea behind General Motors and Sichuan Tianqi Lithium 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.