Correlation Between GM and Invesco Balanced-risk

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

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

Diversification Opportunities for GM and Invesco Balanced-risk

-0.54

Correlation Coefficient

GM  Invesco Balanced-risk

Excellent diversification

The 3 months correlation between GM and Invesco is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Invesco Balanced Risk Allocati in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Balanced Risk 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 Invesco Balanced-risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Balanced Risk has no effect on the direction of GM i.e., GM and Invesco Balanced-risk go up and down completely randomly.

Pair Corralation between GM and Invesco Balanced-risk

Allowing for the 90-day total investment horizon General Motors is expected to generate 5.95 times more return on investment than Invesco Balanced-risk. However, GM is 5.95 times more volatile than Invesco Balanced Risk Allocation. It trades about 0.07 of its potential returns per unit of risk. Invesco Balanced Risk Allocation is currently generating about 0.12 per unit of risk. If you would invest  5,180  in General Motors on September 5, 2024 and sell it today you would earn a total of  186.00  from holding General Motors or generate 3.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Invesco Balanced Risk Allocati

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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.

Invesco Balanced Risk

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Balanced Risk Allocation are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Invesco Balanced-risk is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Invesco Balanced-risk

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

The idea behind General Motors and Invesco Balanced Risk Allocation 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..