Correlation Between Nio and GM
Can any of the company-specific risk be diversified away by investing in both Nio and GM 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 Nio and GM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nio Class A and General Motors, you can compare the effects of market volatilities on Nio and GM 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 Nio with a short position of GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nio and GM.
Diversification Opportunities for Nio and GM
Pay attention - limited upside
The 3 months correlation between Nio and GM is -0.85. Overlapping area represents the amount of risk that can be diversified away by holding Nio Class A and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Nio 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 Nio Class A are associated (or correlated) with GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Nio i.e., Nio and GM go up and down completely randomly.
Pair Corralation between Nio and GM
Considering the 90-day investment horizon Nio Class A is expected to under-perform the GM. In addition to that, Nio is 2.0 times more volatile than General Motors. It trades about -0.11 of its total potential returns per unit of risk. General Motors is currently generating about 0.16 per unit of volatility. If you would invest 2,905 in General Motors on January 19, 2024 and sell it today you would earn a total of 1,339 from holding General Motors or generate 46.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nio Class A vs. General Motors
Performance |
| Timeline |
| Nio Class A |
| General Motors |
Nio and GM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nio and GM
The main advantage of trading using opposite Nio and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nio position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.The idea behind Nio Class A and General Motors 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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