Correlation Between GM and Nationwide Destination

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

By analyzing existing cross correlation between General Motors and Nationwide Destination 2040, you can compare the effects of market volatilities on GM and Nationwide Destination 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 Nationwide Destination. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Nationwide Destination.

Diversification Opportunities for GM and Nationwide Destination

0.52

Correlation Coefficient

GM  Nationwide Destination

Very weak diversification

The 3 months correlation between GM and Nationwide is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Nationwide Destination 2040 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Destination 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 Nationwide Destination. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Destination has no effect on the direction of GM i.e., GM and Nationwide Destination go up and down completely randomly.

Pair Corralation between GM and Nationwide Destination

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Nationwide Destination. In addition to that, GM is 6.13 times more volatile than Nationwide Destination 2040. It trades about -0.15 of its total potential returns per unit of risk. Nationwide Destination 2040 is currently generating about 0.12 per unit of volatility. If you would invest  1,034  in Nationwide Destination 2040 on September 15, 2024 and sell it today you would earn a total of  11.00  from holding Nationwide Destination 2040 or generate 1.06% return on investment over 90 days.

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

General Motors  vs.  Nationwide Destination 2040

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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.

Nationwide Destination

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nationwide Destination 2040 are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Nationwide Destination is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Nationwide Destination

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

The idea behind General Motors and Nationwide Destination 2040 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.