Correlation Between GM and Independent Bank

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

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

Diversification Opportunities for GM and Independent Bank

-0.24

Correlation Coefficient

GM  Independent Bank

Very good diversification

The 3 months correlation between GM and Independent is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Independent Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independent Bank 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 Independent Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Independent Bank has no effect on the direction of GM i.e., GM and Independent Bank go up and down completely randomly.

Pair Corralation between GM and Independent Bank

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Independent Bank. In addition to that, GM is 1.55 times more volatile than Independent Bank. It trades about -0.06 of its total potential returns per unit of risk. Independent Bank is currently generating about 0.02 per unit of volatility. If you would invest  6,411  in Independent Bank on December 28, 2024 and sell it today you would earn a total of  59.00  from holding Independent Bank or generate 0.92% return on investment over 90 days.

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

General Motors  vs.  Independent Bank

General Motors

Risk-Adjusted Performance

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Independent Bank

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Independent Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, Independent Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Independent Bank

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

The idea behind General Motors and Independent Bank 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.