Correlation Between GM and Next Meats

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

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

Diversification Opportunities for GM and Next Meats

0.14

Correlation Coefficient

GM  Next Meats

Average diversification

The 3 months correlation between GM and Next is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Next Meats Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Next Meats Holdings 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 Next Meats. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Next Meats Holdings has no effect on the direction of GM i.e., GM and Next Meats go up and down completely randomly.

Pair Corralation between GM and Next Meats

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.14 times more return on investment than Next Meats. However, General Motors is 7.15 times less risky than Next Meats. It trades about -0.11 of its potential returns per unit of risk. Next Meats Holdings is currently generating about -0.13 per unit of risk. If you would invest  5,612  in General Motors on September 17, 2024 and sell it today you would lose (359.00) from holding General Motors or give up 6.4% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  Next Meats Holdings

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Next Meats Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Next Meats Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak primary indicators, Next Meats demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Next Meats

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

The idea behind General Motors and Next Meats Holdings 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.