Correlation Between GM and Mmzbx

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

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

Diversification Opportunities for GM and Mmzbx

-0.18

Correlation Coefficient

GM  Mmzbx

Good diversification

The 3 months correlation between GM and Mmzbx is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Mmzbx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mmzbx 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 Mmzbx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mmzbx has no effect on the direction of GM i.e., GM and Mmzbx go up and down completely randomly.

Pair Corralation between GM and Mmzbx

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Mmzbx. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.51 times less risky than Mmzbx. The stock trades about -0.09 of its potential returns per unit of risk. The Mmzbx is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,210  in Mmzbx on September 21, 2024 and sell it today you would lose (4.00) from holding Mmzbx or give up 0.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Mmzbx

General Motors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 3 (%) 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.

Mmzbx

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mmzbx has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Mmzbx is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Mmzbx

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

The idea behind General Motors and Mmzbx 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.