Correlation Between GM and New Hope
Can any of the company-specific risk be diversified away by investing in both GM and New Hope 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 New Hope into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and New Hope, you can compare the effects of market volatilities on GM and New Hope 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 New Hope. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and New Hope.
Diversification Opportunities for GM and New Hope
Good diversification
The 3 months correlation between GM and New is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and New Hope in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Hope 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 New Hope. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Hope has no effect on the direction of GM i.e., GM and New Hope go up and down completely randomly.
Pair Corralation between GM and New Hope
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the New Hope. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.05 times less risky than New Hope. The stock trades about -0.16 of its potential returns per unit of risk. The New Hope is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 290.00 in New Hope on September 19, 2024 and sell it today you would earn a total of 11.00 from holding New Hope or generate 3.79% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 95.45% |
Values | Daily Returns |
General Motors vs. New Hope
Performance |
Timeline |
General Motors |
New Hope |
GM and New Hope Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GM and New Hope
The main advantage of trading using opposite GM and New Hope positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, New Hope 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 New Hope will offset losses from the drop in New Hope's long position.The idea behind General Motors and New Hope 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.New Hope vs. China Shenhua Energy | New Hope vs. PT Bayan Resources | New Hope vs. Yanzhou Coal Mining | New Hope vs. PT Adaro Energy |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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