Correlation Between GM and Air New

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

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

Diversification Opportunities for GM and Air New

-0.76

Correlation Coefficient

GM  Air New

Pay attention - limited upside

The 3 months correlation between GM and Air is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Air New Zealand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air New Zealand 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 Air New. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air New Zealand has no effect on the direction of GM i.e., GM and Air New go up and down completely randomly.

Pair Corralation between GM and Air New

Allowing for the 90-day total investment horizon GM is expected to generate 3.93 times less return on investment than Air New. But when comparing it to its historical volatility, General Motors is 2.67 times less risky than Air New. It trades about 0.07 of its potential returns per unit of risk. Air New Zealand is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Air New Zealand on September 4, 2024 and sell it today you would earn a total of  4.00  from holding Air New Zealand or generate 12.5% return on investment over 90 days.

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

General Motors  vs.  Air New Zealand

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Air New Zealand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Air New Zealand has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with GM and Air New

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

The idea behind General Motors and Air New Zealand 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.