Correlation Between GM and BetaPro SP

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

By analyzing existing cross correlation between General Motors and BetaPro SP 500, you can compare the effects of market volatilities on GM and BetaPro SP 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 BetaPro SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and BetaPro SP.

Diversification Opportunities for GM and BetaPro SP

0.75

Correlation Coefficient

GM  BetaPro SP

Poor diversification

The 3 months correlation between GM and BetaPro is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and BetaPro SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BetaPro SP 500 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 BetaPro SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BetaPro SP 500 has no effect on the direction of GM i.e., GM and BetaPro SP go up and down completely randomly.

Pair Corralation between GM and BetaPro SP

Allowing for the 90-day total investment horizon GM is expected to generate 1.01 times less return on investment than BetaPro SP. In addition to that, GM is 1.77 times more volatile than BetaPro SP 500. It trades about 0.1 of its total potential returns per unit of risk. BetaPro SP 500 is currently generating about 0.18 per unit of volatility. If you would invest  2,317  in BetaPro SP 500 on August 31, 2024 and sell it today you would earn a total of  378.00  from holding BetaPro SP 500 or generate 16.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

General Motors  vs.  BetaPro SP 500

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.

BetaPro SP 500

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BetaPro SP 500 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, BetaPro SP displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and BetaPro SP

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

The idea behind General Motors and BetaPro SP 500 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.