Correlation Between GM and Us Lg

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

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

Diversification Opportunities for GM and Us Lg

0.51

Correlation Coefficient

GM  Us Lg

Very weak diversification

The 3 months correlation between GM and DUSQX is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Us Lg Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Lg Cap 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 Us Lg. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Lg Cap has no effect on the direction of GM i.e., GM and Us Lg go up and down completely randomly.

Pair Corralation between GM and Us Lg

Allowing for the 90-day total investment horizon GM is expected to generate 1.72 times less return on investment than Us Lg. In addition to that, GM is 2.26 times more volatile than Us Lg Cap. It trades about 0.04 of its total potential returns per unit of risk. Us Lg Cap is currently generating about 0.16 per unit of volatility. If you would invest  3,224  in Us Lg Cap on October 20, 2024 and sell it today you would earn a total of  87.00  from holding Us Lg Cap or generate 2.7% return on investment over 90 days.

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

General Motors  vs.  Us Lg Cap

General Motors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 3 (%) 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 current stock price disarray, may contribute to short-term losses for the investors.

Us Lg Cap

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Us Lg Cap are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Us Lg is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Us Lg

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

The idea behind General Motors and Us Lg Cap 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.