Correlation Between GM and Equity Income

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

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

Diversification Opportunities for GM and Equity Income

0.77

Correlation Coefficient

GM  Equity Income

Poor diversification

The 3 months correlation between GM and Equity is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income 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 Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of GM i.e., GM and Equity Income go up and down completely randomly.

Pair Corralation between GM and Equity Income

Allowing for the 90-day total investment horizon GM is expected to generate 1.18 times less return on investment than Equity Income. In addition to that, GM is 4.03 times more volatile than Equity Income Fund. It trades about 0.07 of its total potential returns per unit of risk. Equity Income Fund is currently generating about 0.34 per unit of volatility. If you would invest  4,306  in Equity Income Fund on September 5, 2024 and sell it today you would earn a total of  237.00  from holding Equity Income Fund or generate 5.5% return on investment over 90 days.

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

General Motors  vs.  Equity Income Fund

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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.

Equity Income

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Income Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Equity Income may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Equity Income

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

The idea behind General Motors and Equity Income 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.

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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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..