Correlation Between GM and IM Global

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

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

Diversification Opportunities for GM and IM Global

-0.31

Correlation Coefficient

GM  IM Global

Very good diversification

The 3 months correlation between GM and DBEH is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and IM Global Partner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IM Global Partner 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 IM Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IM Global Partner has no effect on the direction of GM i.e., GM and IM Global go up and down completely randomly.

Pair Corralation between GM and IM Global

Allowing for the 90-day total investment horizon General Motors is expected to generate 4.63 times more return on investment than IM Global. However, GM is 4.63 times more volatile than IM Global Partner. It trades about 0.05 of its potential returns per unit of risk. IM Global Partner is currently generating about 0.06 per unit of risk. If you would invest  3,397  in General Motors on September 25, 2024 and sell it today you would earn a total of  1,784  from holding General Motors or generate 52.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.69%
Values	Daily Returns

General Motors  vs.  IM Global Partner

General Motors

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) 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.

IM Global Partner

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IM Global Partner has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, IM Global is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with GM and IM Global

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

The idea behind General Motors and IM Global Partner 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.