Correlation Between GM and Shell PLC

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

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

Diversification Opportunities for GM and Shell PLC

-0.41

Correlation Coefficient

GM  Shell PLC

Very good diversification

The 3 months correlation between GM and Shell is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Shell PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shell PLC ADR 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 Shell PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shell PLC ADR has no effect on the direction of GM i.e., GM and Shell PLC go up and down completely randomly.

Pair Corralation between GM and Shell PLC

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Shell PLC. In addition to that, GM is 2.35 times more volatile than Shell PLC ADR. It trades about -0.01 of its total potential returns per unit of risk. Shell PLC ADR is currently generating about 0.27 per unit of volatility. If you would invest  6,071  in Shell PLC ADR on December 26, 2024 and sell it today you would earn a total of  1,132  from holding Shell PLC ADR or generate 18.65% 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.  Shell PLC ADR

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.

Shell PLC ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Shell PLC ADR are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating technical and fundamental indicators, Shell PLC disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Shell PLC

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

The idea behind General Motors and Shell PLC ADR 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.