Correlation Between General Electric and General Mills

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

By analyzing existing cross correlation between General Electric and General Mills, you can compare the effects of market volatilities on General Electric and General Mills 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 General Electric with a short position of General Mills. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Electric and General Mills.

Diversification Opportunities for General Electric and General Mills

-0.31

Correlation Coefficient

General Electric  General Mills

Very good diversification

The 3 months correlation between General and General is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and General Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Mills and General Electric 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 Electric are associated (or correlated) with General Mills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Mills has no effect on the direction of General Electric i.e., General Electric and General Mills go up and down completely randomly.

Pair Corralation between General Electric and General Mills

Assuming the 90 days horizon General Electric is expected to under-perform the General Mills. In addition to that, General Electric is 1.24 times more volatile than General Mills. It trades about -0.01 of its total potential returns per unit of risk. General Mills is currently generating about 0.16 per unit of volatility. If you would invest  7,704  in General Mills on October 7, 2024 and sell it today you would earn a total of  1,223  from holding General Mills or generate 15.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

General Electric  vs.  General Mills

General Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Electric has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, General Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

General Mills

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Mills are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, General Mills unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with General Electric and General Mills

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

The idea behind General Electric and General Mills 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.