Correlation Between GM and Shenzhen SDG

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

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

Diversification Opportunities for GM and Shenzhen SDG

0.84

Correlation Coefficient

GM  Shenzhen SDG

Very poor diversification

The 3 months correlation between GM and Shenzhen is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Shenzhen SDG Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen SDG Service 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 Shenzhen SDG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen SDG Service has no effect on the direction of GM i.e., GM and Shenzhen SDG go up and down completely randomly.

Pair Corralation between GM and Shenzhen SDG

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Shenzhen SDG. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.96 times less risky than Shenzhen SDG. The stock trades about -0.3 of its potential returns per unit of risk. The Shenzhen SDG Service is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  5,578  in Shenzhen SDG Service on September 24, 2024 and sell it today you would lose (426.00) from holding Shenzhen SDG Service or give up 7.64% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Shenzhen SDG Service

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.

Shenzhen SDG Service

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen SDG Service are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen SDG sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Shenzhen SDG

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

The idea behind General Motors and Shenzhen SDG Service 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.