Correlation Between GM and Invesco KBW

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

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

Diversification Opportunities for GM and Invesco KBW

0.06

Correlation Coefficient

GM  Invesco KBW

Significant diversification

The 3 months correlation between GM and Invesco is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Invesco KBW Regional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW Regional 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 Invesco KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco KBW Regional has no effect on the direction of GM i.e., GM and Invesco KBW go up and down completely randomly.

Pair Corralation between GM and Invesco KBW

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Invesco KBW. In addition to that, GM is 1.74 times more volatile than Invesco KBW Regional. It trades about -0.03 of its total potential returns per unit of risk. Invesco KBW Regional is currently generating about -0.04 per unit of volatility. If you would invest  5,953  in Invesco KBW Regional on December 27, 2024 and sell it today you would lose (222.00) from holding Invesco KBW Regional or give up 3.73% of portfolio value over 90 days.

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

General Motors  vs.  Invesco KBW Regional

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 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.

Invesco KBW Regional

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco KBW Regional has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Invesco KBW is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with GM and Invesco KBW

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

The idea behind General Motors and Invesco KBW Regional 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.