Correlation Between GM and SPDR SPASX

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

By analyzing existing cross correlation between General Motors and SPDR SPASX 200, you can compare the effects of market volatilities on GM and SPDR SPASX 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 SPDR SPASX. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and SPDR SPASX.

Diversification Opportunities for GM and SPDR SPASX

-0.28

Correlation Coefficient

GM  SPDR SPASX

Very good diversification

The 3 months correlation between GM and SPDR is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and SPDR SPASX 200 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SPASX 200 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 SPDR SPASX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SPASX 200 has no effect on the direction of GM i.e., GM and SPDR SPASX go up and down completely randomly.

Pair Corralation between GM and SPDR SPASX

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the SPDR SPASX. In addition to that, GM is 2.64 times more volatile than SPDR SPASX 200. It trades about -0.15 of its total potential returns per unit of risk. SPDR SPASX 200 is currently generating about 0.03 per unit of volatility. If you would invest  1,238  in SPDR SPASX 200 on September 12, 2024 and sell it today you would earn a total of  8.00  from holding SPDR SPASX 200 or generate 0.65% return on investment over 90 days.

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

General Motors  vs.  SPDR SPASX 200

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 unfluctuating primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

SPDR SPASX 200

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SPASX 200 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SPDR SPASX may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and SPDR SPASX

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

The idea behind General Motors and SPDR SPASX 200 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.