Correlation Between GM and Centerspace

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

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

Diversification Opportunities for GM and Centerspace

0.77

Correlation Coefficient

GM  Centerspace

Poor diversification

The 3 months correlation between GM and Centerspace is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Centerspace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centerspace 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 Centerspace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centerspace has no effect on the direction of GM i.e., GM and Centerspace go up and down completely randomly.

Pair Corralation between GM and Centerspace

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.27 times more return on investment than Centerspace. However, GM is 1.27 times more volatile than Centerspace. It trades about 0.03 of its potential returns per unit of risk. Centerspace is currently generating about 0.02 per unit of risk. If you would invest  3,792  in General Motors on November 20, 2024 and sell it today you would earn a total of  1,045  from holding General Motors or generate 27.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Centerspace

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.

Centerspace

Risk-Adjusted Performance

Very Weak

Over the last 90 days Centerspace has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with GM and Centerspace

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

The idea behind General Motors and Centerspace 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.