Correlation Between GM and ZoomLion

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

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

Diversification Opportunities for GM and ZoomLion

0.68

Correlation Coefficient

GM  ZoomLion

Poor diversification

The 3 months correlation between GM and ZoomLion is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and ZoomLion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ZoomLion 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 ZoomLion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ZoomLion has no effect on the direction of GM i.e., GM and ZoomLion go up and down completely randomly.

Pair Corralation between GM and ZoomLion

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.6 times more return on investment than ZoomLion. However, General Motors is 1.67 times less risky than ZoomLion. It trades about 0.19 of its potential returns per unit of risk. ZoomLion is currently generating about 0.11 per unit of risk. If you would invest  3,889  in General Motors on February 20, 2024 and sell it today you would earn a total of  687.00  from holding General Motors or generate 17.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

General Motors  vs.  ZoomLion

General Motors

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 15 (%) 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.

ZoomLion

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ZoomLion are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, ZoomLion showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and ZoomLion

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

The idea behind General Motors and ZoomLion 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.