Correlation Between GM and IShares Emergent

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

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

Diversification Opportunities for GM and IShares Emergent

-0.1

Correlation Coefficient

GM  IShares Emergent

Good diversification

The 3 months correlation between GM and IShares is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and iShares Emergent Food in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Emergent Food 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 IShares Emergent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Emergent Food has no effect on the direction of GM i.e., GM and IShares Emergent go up and down completely randomly.

Pair Corralation between GM and IShares Emergent

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the IShares Emergent. In addition to that, GM is 2.67 times more volatile than iShares Emergent Food. It trades about -0.32 of its total potential returns per unit of risk. iShares Emergent Food is currently generating about -0.13 per unit of volatility. If you would invest  2,134  in iShares Emergent Food on November 28, 2024 and sell it today you would lose (52.00) from holding iShares Emergent Food or give up 2.44% of portfolio value over 90 days.

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

General Motors  vs.  iShares Emergent Food

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 weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

iShares Emergent Food

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Emergent Food has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IShares Emergent is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and IShares Emergent

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

The idea behind General Motors and iShares Emergent Food 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.