Correlation Between GM and International Equity

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

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

Diversification Opportunities for GM and International Equity

-0.29

Correlation Coefficient

GM  International Equity

Very good diversification

The 3 months correlation between GM and International is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and International Equity Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Equity 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 International Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Equity has no effect on the direction of GM i.e., GM and International Equity go up and down completely randomly.

Pair Corralation between GM and International Equity

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.36 times more return on investment than International Equity. However, General Motors is 2.75 times less risky than International Equity. It trades about -0.26 of its potential returns per unit of risk. International Equity Portfolio is currently generating about -0.22 per unit of risk. If you would invest  6,006  in General Motors on September 24, 2024 and sell it today you would lose (750.00) from holding General Motors or give up 12.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  International Equity Portfolio

General Motors

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 5 (%) 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.

International Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Equity Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with GM and International Equity

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

The idea behind General Motors and International Equity Portfolio 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.