Correlation Between GM and Pacific Funds

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

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

Diversification Opportunities for GM and Pacific Funds

-0.61

Correlation Coefficient

GM  Pacific Funds

Excellent diversification

The 3 months correlation between GM and Pacific is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Pacific Funds High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Funds High 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 Pacific Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Funds High has no effect on the direction of GM i.e., GM and Pacific Funds go up and down completely randomly.

Pair Corralation between GM and Pacific Funds

Allowing for the 90-day total investment horizon General Motors is expected to generate 15.84 times more return on investment than Pacific Funds. However, GM is 15.84 times more volatile than Pacific Funds High. It trades about 0.01 of its potential returns per unit of risk. Pacific Funds High is currently generating about 0.12 per unit of risk. If you would invest  4,792  in General Motors on December 4, 2024 and sell it today you would lose (54.00) from holding General Motors or give up 1.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.19%
Values	Daily Returns

General Motors  vs.  Pacific Funds High

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.

Pacific Funds High

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Funds High are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical indicators, Pacific Funds 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 Pacific Funds

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

The idea behind General Motors and Pacific Funds High 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.