Correlation Between GM and Invesco NASDAQ

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

By analyzing existing cross correlation between General Motors and Invesco NASDAQ 100, you can compare the effects of market volatilities on GM and Invesco NASDAQ 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 Invesco NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Invesco NASDAQ.

Diversification Opportunities for GM and Invesco NASDAQ

0.83

Correlation Coefficient

GM  Invesco NASDAQ

Very poor diversification

The 3 months correlation between GM and Invesco is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Invesco NASDAQ 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco NASDAQ 100 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 Invesco NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco NASDAQ 100 has no effect on the direction of GM i.e., GM and Invesco NASDAQ go up and down completely randomly.

Pair Corralation between GM and Invesco NASDAQ

Allowing for the 90-day total investment horizon GM is expected to generate 1.24 times less return on investment than Invesco NASDAQ. In addition to that, GM is 2.56 times more volatile than Invesco NASDAQ 100. It trades about 0.08 of its total potential returns per unit of risk. Invesco NASDAQ 100 is currently generating about 0.25 per unit of volatility. If you would invest  3,029  in Invesco NASDAQ 100 on September 5, 2024 and sell it today you would earn a total of  523.00  from holding Invesco NASDAQ 100 or generate 17.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Invesco NASDAQ 100

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.

Invesco NASDAQ 100

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco NASDAQ 100 are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Invesco NASDAQ displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Invesco NASDAQ

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

The idea behind General Motors and Invesco NASDAQ 100 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.