Correlation Between GM and Purpose High

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

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

Diversification Opportunities for GM and Purpose High

-0.01

Correlation Coefficient

GM  Purpose High

Good diversification

The 3 months correlation between GM and Purpose is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Purpose High Interest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Purpose High Interest 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 Purpose High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Purpose High Interest has no effect on the direction of GM i.e., GM and Purpose High go up and down completely randomly.

Pair Corralation between GM and Purpose High

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Purpose High. In addition to that, GM is 1.67 times more volatile than Purpose High Interest. It trades about -0.31 of its total potential returns per unit of risk. Purpose High Interest is currently generating about 0.22 per unit of volatility. If you would invest  4,713  in Purpose High Interest on September 24, 2024 and sell it today you would earn a total of  299.00  from holding Purpose High Interest or generate 6.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  Purpose High Interest

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.

Purpose High Interest

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Purpose High Interest are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Purpose High is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with GM and Purpose High

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

The idea behind General Motors and Purpose High Interest 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.