Correlation Between GM and Nike

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Can any of the company-specific risk be diversified away by investing in both GM and Nike 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 Nike into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Nike Inc, you can compare the effects of market volatilities on GM and Nike 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 Nike. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Nike.

Diversification Opportunities for GM and Nike

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between GM and Nike is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Nike Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nike Inc 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 Nike. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nike Inc has no effect on the direction of GM i.e., GM and Nike go up and down completely randomly.

Pair Corralation between GM and Nike

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.21 times more return on investment than Nike. However, GM is 1.21 times more volatile than Nike Inc. It trades about -0.06 of its potential returns per unit of risk. Nike Inc is currently generating about -0.09 per unit of risk. If you would invest  3,875  in General Motors on March 29, 2022 and sell it today you would lose (393.00)  from holding General Motors or give up 10.14% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

General Motors  vs.  Nike Inc

 Performance (%) 
      Timeline 
General Motors 
GM Performance
0 of 100
Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's primary indicators remain relatively steady which may send shares a bit higher in July 2022. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0677
Forward Annual Dividend Rate
1.52
Dividend Date
2020-03-20
Ex Dividend Date
2020-03-05

GM Price Channel

Nike Inc 
Nike Performance
0 of 100
Over the last 90 days Nike Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward-looking signals remain rather sound which may send shares a bit higher in July 2022. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Structure and Payout Changes

Forward Annual Dividend Yield
0.0108
Payout Ratio
0.31
Last Split Factor
2:1
Forward Annual Dividend Rate
1.22
Dividend Date
2022-07-01
Ex Dividend Date
2022-06-03
Last Split Date
2015-12-24

Nike Price Channel

GM and Nike Volatility Contrast

 Predicted Return Density 
      Returns 

Pair Trading with GM and Nike

The main advantage of trading using opposite GM and Nike positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Nike 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 Nike will offset losses from the drop in Nike's long position.
The idea behind General Motors and Nike Inc 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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