Correlation Between GM and MDA

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

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

Diversification Opportunities for GM and MDA

0.72

Correlation Coefficient

GM  MDA

Poor diversification

The 3 months correlation between GM and MDA is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and MDA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MDA 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 MDA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MDA has no effect on the direction of GM i.e., GM and MDA go up and down completely randomly.

Pair Corralation between GM and MDA

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the MDA. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.69 times less risky than MDA. The stock trades about -0.02 of its potential returns per unit of risk. The MDA is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,924  in MDA on December 25, 2024 and sell it today you would lose (39.00) from holding MDA or give up 1.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

General Motors  vs.  MDA

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.

MDA

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in MDA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, MDA is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with GM and MDA

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

The idea behind General Motors and MDA 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.