Correlation Between GM and Madison Pacific

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

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

Diversification Opportunities for GM and Madison Pacific

-0.33

Correlation Coefficient

GM  Madison Pacific

Very good diversification

The 3 months correlation between GM and Madison is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Madison Pacific Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Madison Pacific Prop 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 Madison Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Madison Pacific Prop has no effect on the direction of GM i.e., GM and Madison Pacific go up and down completely randomly.

Pair Corralation between GM and Madison Pacific

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.95 times more return on investment than Madison Pacific. However, General Motors is 1.05 times less risky than Madison Pacific. It trades about 0.09 of its potential returns per unit of risk. Madison Pacific Properties is currently generating about 0.05 per unit of risk. If you would invest  4,729  in General Motors on September 8, 2024 and sell it today you would earn a total of  612.00  from holding General Motors or generate 12.94% return on investment over 90 days.

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

General Motors  vs.  Madison Pacific Properties

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 displayed solid returns over the last few months and may actually be approaching a breakup point.

Madison Pacific Prop

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Madison Pacific Properties are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Madison Pacific may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Madison Pacific

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

The idea behind General Motors and Madison Pacific Properties 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.

Check out your portfolio center.

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.