Correlation Between GM and Impac Mortgage

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

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

Diversification Opportunities for GM and Impac Mortgage

-0.21

Correlation Coefficient

GM  Impac Mortgage

Very good diversification

The 3 months correlation between GM and Impac is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Impac Mortgage Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Impac Mortgage Holdings 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 Impac Mortgage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Impac Mortgage Holdings has no effect on the direction of GM i.e., GM and Impac Mortgage go up and down completely randomly.

Pair Corralation between GM and Impac Mortgage

Allowing for the 90-day total investment horizon GM is expected to generate 3.0 times less return on investment than Impac Mortgage. But when comparing it to its historical volatility, General Motors is 9.28 times less risky than Impac Mortgage. It trades about 0.04 of its potential returns per unit of risk. Impac Mortgage Holdings is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  33.00  in Impac Mortgage Holdings on October 23, 2024 and sell it today you would lose (27.49) from holding Impac Mortgage Holdings or give up 83.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	20.61%
Values	Daily Returns

General Motors  vs.  Impac Mortgage Holdings

General Motors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Impac Mortgage Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Impac Mortgage Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, Impac Mortgage is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with GM and Impac Mortgage

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

The idea behind General Motors and Impac Mortgage Holdings 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.