Correlation Between GM and Exchange Income

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

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

Diversification Opportunities for GM and Exchange Income

0.46

Correlation Coefficient

GM  Exchange Income

Very weak diversification

The 3 months correlation between GM and Exchange is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Exchange Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Income 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 Exchange Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Income has no effect on the direction of GM i.e., GM and Exchange Income go up and down completely randomly.

Pair Corralation between GM and Exchange Income

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Exchange Income. In addition to that, GM is 2.15 times more volatile than Exchange Income. It trades about -0.07 of its total potential returns per unit of risk. Exchange Income is currently generating about -0.07 per unit of volatility. If you would invest  5,497  in Exchange Income on November 20, 2024 and sell it today you would lose (276.00) from holding Exchange Income or give up 5.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.72%
Values	Daily Returns

General Motors  vs.  Exchange Income

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.

Exchange Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Exchange Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Exchange Income is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with GM and Exchange Income

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

The idea behind General Motors and Exchange Income 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.