Correlation Between GM and CHINA EAST
Can any of the company-specific risk be diversified away by investing in both GM and CHINA EAST 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 CHINA EAST into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and CHINA EAST ED, you can compare the effects of market volatilities on GM and CHINA EAST 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 CHINA EAST. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and CHINA EAST.
Diversification Opportunities for GM and CHINA EAST
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between GM and CHINA is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and CHINA EAST ED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA EAST ED 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 CHINA EAST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA EAST ED has no effect on the direction of GM i.e., GM and CHINA EAST go up and down completely randomly.
Pair Corralation between GM and CHINA EAST
Allowing for the 90-day total investment horizon GM is expected to generate 2.93 times less return on investment than CHINA EAST. But when comparing it to its historical volatility, General Motors is 1.4 times less risky than CHINA EAST. It trades about 0.06 of its potential returns per unit of risk. CHINA EAST ED is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 25.00 in CHINA EAST ED on September 23, 2024 and sell it today you would earn a total of 7.00 from holding CHINA EAST ED or generate 28.0% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
General Motors vs. CHINA EAST ED
Performance |
Timeline |
General Motors |
CHINA EAST ED |
GM and CHINA EAST Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GM and CHINA EAST
The main advantage of trading using opposite GM and CHINA EAST positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, CHINA EAST 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 CHINA EAST will offset losses from the drop in CHINA EAST's long position.The idea behind General Motors and CHINA EAST ED 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.CHINA EAST vs. IDP EDUCATION LTD | CHINA EAST vs. TAL Education Group | CHINA EAST vs. Grand Canyon Education | CHINA EAST vs. Graham Holdings Co |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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