Correlation Between GM and XIAO I

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

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

Diversification Opportunities for GM and XIAO I

0.17

Correlation Coefficient

GM  XIAO I

Average diversification

The 3 months correlation between GM and XIAO is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and XIAO I American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XIAO I American 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 XIAO I. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XIAO I American has no effect on the direction of GM i.e., GM and XIAO I go up and down completely randomly.

Pair Corralation between GM and XIAO I

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.54 times more return on investment than XIAO I. However, General Motors is 1.86 times less risky than XIAO I. It trades about -0.31 of its potential returns per unit of risk. XIAO I American is currently generating about -0.28 per unit of risk. If you would invest  6,006  in General Motors on September 24, 2024 and sell it today you would lose (825.00) from holding General Motors or give up 13.74% of portfolio value over 90 days.

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

General Motors  vs.  XIAO I American

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.

XIAO I American

Risk-Adjusted Performance

4 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in XIAO I American are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, XIAO I demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and XIAO I

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

The idea behind General Motors and XIAO I American 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.