Correlation Between GM and Northern Government

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

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

Diversification Opportunities for GM and Northern Government

-0.75

Correlation Coefficient

GM  Northern Government

Pay attention - limited upside

The 3 months correlation between GM and Northern is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Northern Government Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Government 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 Northern Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Government has no effect on the direction of GM i.e., GM and Northern Government go up and down completely randomly.

Pair Corralation between GM and Northern Government

Allowing for the 90-day total investment horizon General Motors is expected to generate 6.59 times more return on investment than Northern Government. However, GM is 6.59 times more volatile than Northern Government Fund. It trades about 0.05 of its potential returns per unit of risk. Northern Government Fund is currently generating about 0.03 per unit of risk. If you would invest  3,312  in General Motors on September 24, 2024 and sell it today you would earn a total of  1,869  from holding General Motors or generate 56.43% return on investment over 90 days.

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

General Motors  vs.  Northern Government Fund

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) 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.

Northern Government

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northern Government Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Northern Government 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 Northern Government

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

The idea behind General Motors and Northern Government Fund 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.