Correlation Between GM and Innovator Equity

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

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

Diversification Opportunities for GM and Innovator Equity

0.8

Correlation Coefficient

GM  Innovator Equity

Very poor diversification

The 3 months correlation between GM and Innovator is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Innovator Equity Premium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innovator Equity Premium 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 Innovator Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innovator Equity Premium has no effect on the direction of GM i.e., GM and Innovator Equity go up and down completely randomly.

Pair Corralation between GM and Innovator Equity

Allowing for the 90-day total investment horizon General Motors is expected to generate 40.36 times more return on investment than Innovator Equity. However, GM is 40.36 times more volatile than Innovator Equity Premium. It trades about 0.1 of its potential returns per unit of risk. Innovator Equity Premium is currently generating about 0.41 per unit of risk. If you would invest  4,829  in General Motors on September 1, 2024 and sell it today you would earn a total of  730.00  from holding General Motors or generate 15.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

General Motors  vs.  Innovator Equity Premium

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.

Innovator Equity Premium

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Innovator Equity Premium are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Innovator Equity is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with GM and Innovator Equity

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

The idea behind General Motors and Innovator Equity Premium 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.