Correlation Between GM and The Gold

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

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

Diversification Opportunities for GM and The Gold

-0.48

Correlation Coefficient

GM  The Gold

Very good diversification

The 3 months correlation between GM and The is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and The Gold Bullion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Bullion 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 The Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Bullion has no effect on the direction of GM i.e., GM and The Gold go up and down completely randomly.

Pair Corralation between GM and The Gold

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the The Gold. In addition to that, GM is 2.85 times more volatile than The Gold Bullion. It trades about -0.01 of its total potential returns per unit of risk. The Gold Bullion is currently generating about 0.24 per unit of volatility. If you would invest  2,004  in The Gold Bullion on December 26, 2024 and sell it today you would earn a total of  269.00  from holding The Gold Bullion or generate 13.42% return on investment over 90 days.

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

General Motors  vs.  The Gold Bullion

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Gold Bullion

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Gold Bullion are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, The Gold showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and The Gold

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

The idea behind General Motors and The Gold Bullion 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.