Correlation Between GM and Goldman Sachs

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

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

Diversification Opportunities for GM and Goldman Sachs

0.78

Correlation Coefficient

GM  Goldman Sachs

Poor diversification

The 3 months correlation between GM and Goldman is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Goldman Sachs Dynamic in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goldman Sachs Dynamic 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 Goldman Sachs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goldman Sachs Dynamic has no effect on the direction of GM i.e., GM and Goldman Sachs go up and down completely randomly.

Pair Corralation between GM and Goldman Sachs

Allowing for the 90-day total investment horizon General Motors is expected to generate 3.53 times more return on investment than Goldman Sachs. However, GM is 3.53 times more volatile than Goldman Sachs Dynamic. It trades about 0.1 of its potential returns per unit of risk. Goldman Sachs Dynamic is currently generating about 0.2 per unit of risk. If you would invest  4,620  in General Motors on September 13, 2024 and sell it today you would earn a total of  654.00  from holding General Motors or generate 14.16% 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.  Goldman Sachs Dynamic

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.

Goldman Sachs Dynamic

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Dynamic are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Goldman Sachs may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Goldman Sachs

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

The idea behind General Motors and Goldman Sachs Dynamic 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.