Correlation Between GM and SPDR MSCI

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

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

Diversification Opportunities for GM and SPDR MSCI

-0.64

Correlation Coefficient

GM  SPDR MSCI

Excellent diversification

The 3 months correlation between GM and SPDR is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and SPDR MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR MSCI Europe 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 SPDR MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR MSCI Europe has no effect on the direction of GM i.e., GM and SPDR MSCI go up and down completely randomly.

Pair Corralation between GM and SPDR MSCI

Allowing for the 90-day total investment horizon General Motors is expected to generate 3.59 times more return on investment than SPDR MSCI. However, GM is 3.59 times more volatile than SPDR MSCI Europe. It trades about 0.17 of its potential returns per unit of risk. SPDR MSCI Europe is currently generating about 0.08 per unit of risk. If you would invest  5,076  in General Motors on September 1, 2024 and sell it today you would earn a total of  483.00  from holding General Motors or generate 9.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  SPDR MSCI Europe

General Motors

Risk-Adjusted Performance

7 of 100

OK

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.

SPDR MSCI Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR MSCI Europe has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SPDR MSCI 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 SPDR MSCI

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

The idea behind General Motors and SPDR MSCI Europe 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.