Correlation Between GM and Ibstock PLC

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

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

Diversification Opportunities for GM and Ibstock PLC

0.16

Correlation Coefficient

GM  Ibstock PLC

Average diversification

The 3 months correlation between GM and Ibstock is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Ibstock PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ibstock PLC 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 Ibstock PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ibstock PLC has no effect on the direction of GM i.e., GM and Ibstock PLC go up and down completely randomly.

Pair Corralation between GM and Ibstock PLC

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.18 times more return on investment than Ibstock PLC. However, GM is 1.18 times more volatile than Ibstock PLC. It trades about 0.12 of its potential returns per unit of risk. Ibstock PLC is currently generating about 0.07 per unit of risk. If you would invest  2,655  in General Motors on October 8, 2024 and sell it today you would earn a total of  2,522  from holding General Motors or generate 94.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.31%
Values	Daily Returns

General Motors  vs.  Ibstock PLC

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.

Ibstock PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ibstock PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Ibstock PLC is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM and Ibstock PLC

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

The idea behind General Motors and Ibstock PLC 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.