Correlation Between GM and PowerShares

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

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

Diversification Opportunities for GM and PowerShares

0.0

Correlation Coefficient

GM  PowerShares

Pay attention - limited upside

The 3 months correlation between GM and PowerShares is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and PowerShares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PowerShares 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 PowerShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PowerShares has no effect on the direction of GM i.e., GM and PowerShares go up and down completely randomly.

Pair Corralation between GM and PowerShares

If you would invest  3,568  in General Motors on October 13, 2024 and sell it today you would earn a total of  1,417  from holding General Motors or generate 39.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

General Motors  vs.  PowerShares

General Motors

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

PowerShares

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with GM and PowerShares

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

The idea behind General Motors and PowerShares 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.