Correlation Between GM and INGERSOLL

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

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

Diversification Opportunities for GM and INGERSOLL

0.54

Correlation Coefficient

GM  INGERSOLL

Very weak diversification

The 3 months correlation between GM and INGERSOLL is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and INGERSOLL RAND LUXEMBOURG FIN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INGERSOLL RAND LUXEM 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 INGERSOLL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INGERSOLL RAND LUXEM has no effect on the direction of GM i.e., GM and INGERSOLL go up and down completely randomly.

Pair Corralation between GM and INGERSOLL

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.77 times more return on investment than INGERSOLL. However, General Motors is 1.3 times less risky than INGERSOLL. It trades about 0.05 of its potential returns per unit of risk. INGERSOLL RAND LUXEMBOURG FIN is currently generating about -0.01 per unit of risk. If you would invest  3,554  in General Motors on September 19, 2024 and sell it today you would earn a total of  1,561  from holding General Motors or generate 43.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	28.63%
Values	Daily Returns

General Motors  vs.  INGERSOLL RAND LUXEMBOURG FIN

General Motors

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 3 (%) 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.

INGERSOLL RAND LUXEM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days INGERSOLL RAND LUXEMBOURG FIN has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for INGERSOLL RAND LUXEMBOURG FIN investors.

Pair Trading with GM and INGERSOLL

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

The idea behind General Motors and INGERSOLL RAND LUXEMBOURG FIN 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.