Correlation Between GM and Investment

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

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

Diversification Opportunities for GM and Investment

-0.7

Correlation Coefficient

GM  Investment

Excellent diversification

The 3 months correlation between GM and Investment is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Investment and Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investment and Industrial 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 Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investment and Industrial has no effect on the direction of GM i.e., GM and Investment go up and down completely randomly.

Pair Corralation between GM and Investment

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Investment. In addition to that, GM is 1.6 times more volatile than Investment and Industrial. It trades about -0.07 of its total potential returns per unit of risk. Investment and Industrial is currently generating about 0.17 per unit of volatility. If you would invest  6,650,000  in Investment and Industrial on December 2, 2024 and sell it today you would earn a total of  920,000  from holding Investment and Industrial or generate 13.83% return on investment over 90 days.

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

General Motors  vs.  Investment and Industrial

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Investment and Industrial

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Investment and Industrial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Investment displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Investment

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

The idea behind General Motors and Investment and Industrial 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.