Correlation Between GM and Mineral Resources

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

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

Diversification Opportunities for GM and Mineral Resources

-0.77

Correlation Coefficient

GM  Mineral Resources

Pay attention - limited upside

The 3 months correlation between GM and Mineral is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Mineral Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mineral Resources 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 Mineral Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mineral Resources has no effect on the direction of GM i.e., GM and Mineral Resources go up and down completely randomly.

Pair Corralation between GM and Mineral Resources

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.53 times more return on investment than Mineral Resources. However, General Motors is 1.9 times less risky than Mineral Resources. It trades about 0.08 of its potential returns per unit of risk. Mineral Resources is currently generating about 0.0 per unit of risk. If you would invest  4,741  in General Motors on September 17, 2024 and sell it today you would earn a total of  512.00  from holding General Motors or generate 10.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

General Motors  vs.  Mineral Resources

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Mineral Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mineral Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Mineral Resources is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM and Mineral Resources

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

The idea behind General Motors and Mineral Resources 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.