Correlation Between GM and FlexShares IBoxx

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

By analyzing existing cross correlation between General Motors and FlexShares iBoxx 3 Year, you can compare the effects of market volatilities on GM and FlexShares IBoxx 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 FlexShares IBoxx. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and FlexShares IBoxx.

Diversification Opportunities for GM and FlexShares IBoxx

-0.6

Correlation Coefficient

GM  FlexShares IBoxx

Excellent diversification

The 3 months correlation between GM and FlexShares is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and FlexShares iBoxx 3 Year in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares iBoxx 3 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 FlexShares IBoxx. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares iBoxx 3 has no effect on the direction of GM i.e., GM and FlexShares IBoxx go up and down completely randomly.

Pair Corralation between GM and FlexShares IBoxx

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the FlexShares IBoxx. In addition to that, GM is 16.48 times more volatile than FlexShares iBoxx 3 Year. It trades about -0.06 of its total potential returns per unit of risk. FlexShares iBoxx 3 Year is currently generating about 0.34 per unit of volatility. If you would invest  2,355  in FlexShares iBoxx 3 Year on December 28, 2024 and sell it today you would earn a total of  80.50  from holding FlexShares iBoxx 3 Year or generate 3.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

General Motors  vs.  FlexShares iBoxx 3 Year

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

FlexShares iBoxx 3

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares iBoxx 3 Year are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, FlexShares IBoxx is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM and FlexShares IBoxx

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

The idea behind General Motors and FlexShares iBoxx 3 Year 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.