Correlation Between GM and Intermediate Bond

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

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

Diversification Opportunities for GM and Intermediate Bond

-0.59

Correlation Coefficient

GM  Intermediate Bond

Excellent diversification

The 3 months correlation between GM and Intermediate is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Intermediate Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intermediate Bond 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 Intermediate Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intermediate Bond has no effect on the direction of GM i.e., GM and Intermediate Bond go up and down completely randomly.

Pair Corralation between GM and Intermediate Bond

Allowing for the 90-day total investment horizon General Motors is expected to generate 6.69 times more return on investment than Intermediate Bond. However, GM is 6.69 times more volatile than Intermediate Bond Fund. It trades about 0.04 of its potential returns per unit of risk. Intermediate Bond Fund is currently generating about 0.03 per unit of risk. If you would invest  3,568  in General Motors on October 13, 2024 and sell it today you would earn a total of  1,417  from holding General Motors or generate 39.71% return on investment over 90 days.

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

General Motors  vs.  Intermediate Bond Fund

General Motors

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 2 (%) 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 latest stock price disarray, may contribute to short-term losses for the investors.

Intermediate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intermediate Bond Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Intermediate Bond 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 Intermediate Bond

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

The idea behind General Motors and Intermediate Bond Fund 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.