Correlation Between GM and MXC

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

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

Diversification Opportunities for GM and MXC

-0.74

Correlation Coefficient

GM  MXC

Pay attention - limited upside

The 3 months correlation between GM and MXC is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and MXC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MXC 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 MXC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MXC has no effect on the direction of GM i.e., GM and MXC go up and down completely randomly.

Pair Corralation between GM and MXC

Allowing for the 90-day total investment horizon GM is expected to generate 3.86 times less return on investment than MXC. But when comparing it to its historical volatility, General Motors is 2.46 times less risky than MXC. It trades about 0.16 of its potential returns per unit of risk. MXC is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  0.50  in MXC on September 2, 2024 and sell it today you would earn a total of  0.20  from holding MXC or generate 39.96% return on investment over 90 days.

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

General Motors  vs.  MXC

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) 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.

MXC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MXC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, MXC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM and MXC

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

The idea behind General Motors and MXC 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.