Correlation Between GM and WisdomTree Wheat

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

By analyzing existing cross correlation between General Motors and WisdomTree Wheat 2x, you can compare the effects of market volatilities on GM and WisdomTree Wheat 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 WisdomTree Wheat. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and WisdomTree Wheat.

Diversification Opportunities for GM and WisdomTree Wheat

-0.68

Correlation Coefficient

GM  WisdomTree Wheat

Excellent diversification

The 3 months correlation between GM and WisdomTree is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and WisdomTree Wheat 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Wheat 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 WisdomTree Wheat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Wheat has no effect on the direction of GM i.e., GM and WisdomTree Wheat go up and down completely randomly.

Pair Corralation between GM and WisdomTree Wheat

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.55 times more return on investment than WisdomTree Wheat. However, General Motors is 1.82 times less risky than WisdomTree Wheat. It trades about 0.05 of its potential returns per unit of risk. WisdomTree Wheat 2x is currently generating about -0.06 per unit of risk. If you would invest  3,312  in General Motors on September 23, 2024 and sell it today you would earn a total of  1,869  from holding General Motors or generate 56.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.6%
Values	Daily Returns

General Motors  vs.  WisdomTree Wheat 2x

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

WisdomTree Wheat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days WisdomTree Wheat 2x has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Etf's forward-looking indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with GM and WisdomTree Wheat

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

The idea behind General Motors and WisdomTree Wheat 2x 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.