Correlation Between GM and T REX

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

By analyzing existing cross correlation between General Motors and T REX 2X Inverse, you can compare the effects of market volatilities on GM and T REX 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 T REX. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and T REX.

Diversification Opportunities for GM and T REX

-0.18

Correlation Coefficient

GM  T REX

Good diversification

The 3 months correlation between GM and MSTZ is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and T REX 2X Inverse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on T REX 2X 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 T REX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of T REX 2X has no effect on the direction of GM i.e., GM and T REX go up and down completely randomly.

Pair Corralation between GM and T REX

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.22 times more return on investment than T REX. However, General Motors is 4.45 times less risky than T REX. It trades about -0.07 of its potential returns per unit of risk. T REX 2X Inverse is currently generating about -0.03 per unit of risk. If you would invest  5,414  in General Motors on December 27, 2024 and sell it today you would lose (685.00) from holding General Motors or give up 12.65% of portfolio value over 90 days.

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

General Motors  vs.  T REX 2X Inverse

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

T REX 2X

Risk-Adjusted Performance

Very Weak

Over the last 90 days T REX 2X Inverse has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with GM and T REX

The main advantage of trading using opposite GM and T REX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, T REX 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 T REX will offset losses from the drop in T REX's long position.

The idea behind General Motors and T REX 2X Inverse 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.