Correlation Between GM and IShares Consumer

Can any of the company-specific risk be diversified away by investing in both GM and IShares Consumer 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 Consumer 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 Consumer Discretionary, you can compare the effects of market volatilities on GM and IShares Consumer 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 Consumer. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and IShares Consumer.

Diversification Opportunities for GM and IShares Consumer

0.83

Correlation Coefficient

GM  IShares Consumer

Very poor diversification

The 3 months correlation between GM and IShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and iShares Consumer Discretionary in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Consumer Dis 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 Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Consumer Dis has no effect on the direction of GM i.e., GM and IShares Consumer go up and down completely randomly.

Pair Corralation between GM and IShares Consumer

Allowing for the 90-day total investment horizon GM is expected to generate 1.14 times less return on investment than IShares Consumer. In addition to that, GM is 2.95 times more volatile than iShares Consumer Discretionary. It trades about 0.08 of its total potential returns per unit of risk. iShares Consumer Discretionary is currently generating about 0.27 per unit of volatility. If you would invest  8,359  in iShares Consumer Discretionary on August 30, 2024 and sell it today you would earn a total of  1,337  from holding iShares Consumer Discretionary or generate 15.99% return on investment over 90 days.

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

General Motors  vs.  iShares Consumer Discretionary

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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.

iShares Consumer Dis

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Consumer Discretionary are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, IShares Consumer exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and IShares Consumer

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

The idea behind General Motors and iShares Consumer Discretionary 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.