Correlation Between GM and Eafe Fund

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

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

Diversification Opportunities for GM and Eafe Fund

0.09

Correlation Coefficient

GM  Eafe Fund

Significant diversification

The 3 months correlation between GM and Eafe is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and The Eafe Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eafe Fund 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 Eafe Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eafe Fund has no effect on the direction of GM i.e., GM and Eafe Fund go up and down completely randomly.

Pair Corralation between GM and Eafe Fund

Allowing for the 90-day total investment horizon General Motors is expected to generate 2.36 times more return on investment than Eafe Fund. However, GM is 2.36 times more volatile than The Eafe Fund. It trades about 0.08 of its potential returns per unit of risk. The Eafe Fund is currently generating about 0.11 per unit of risk. If you would invest  4,803  in General Motors on September 5, 2024 and sell it today you would earn a total of  563.00  from holding General Motors or generate 11.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

General Motors  vs.  The Eafe Fund

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.

Eafe Fund

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Eafe Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Eafe Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Eafe Fund

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

The idea behind General Motors and The Eafe 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.