Correlation Between GM and Short Duration

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

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

Diversification Opportunities for GM and Short Duration

-0.61

Correlation Coefficient

GM  Short Duration

Excellent diversification

The 3 months correlation between GM and Short is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Short Duration Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration 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 Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration has no effect on the direction of GM i.e., GM and Short Duration go up and down completely randomly.

Pair Corralation between GM and Short Duration

Allowing for the 90-day total investment horizon General Motors is expected to generate 12.3 times more return on investment than Short Duration. However, GM is 12.3 times more volatile than Short Duration Fund. It trades about 0.05 of its potential returns per unit of risk. Short Duration Fund is currently generating about 0.1 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	100.0%
Values	Daily Returns

General Motors  vs.  Short Duration Fund

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.

Short Duration

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Short Duration Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Short Duration 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 Short Duration

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

The idea behind General Motors and Short Duration Fund 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.