Correlation Between GM and Taiwan Closed

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

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

Diversification Opportunities for GM and Taiwan Closed

-0.08

Correlation Coefficient

GM  Taiwan Closed

Good diversification

The 3 months correlation between GM and Taiwan is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Taiwan Closed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Taiwan Closed 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 Taiwan Closed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Taiwan Closed has no effect on the direction of GM i.e., GM and Taiwan Closed go up and down completely randomly.

Pair Corralation between GM and Taiwan Closed

Allowing for the 90-day total investment horizon GM is expected to generate 1.25 times less return on investment than Taiwan Closed. In addition to that, GM is 1.63 times more volatile than Taiwan Closed. It trades about 0.06 of its total potential returns per unit of risk. Taiwan Closed is currently generating about 0.12 per unit of volatility. If you would invest  2,304  in Taiwan Closed on September 16, 2024 and sell it today you would earn a total of  2,271  from holding Taiwan Closed or generate 98.57% return on investment over 90 days.

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

General Motors  vs.  Taiwan Closed

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.

Taiwan Closed

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Taiwan Closed are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of very fragile basic indicators, Taiwan Closed may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Taiwan Closed

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

The idea behind General Motors and Taiwan Closed 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.