Correlation Between GM and US Bancorp

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

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

Diversification Opportunities for GM and US Bancorp

0.82

Correlation Coefficient

GM  US Bancorp

Very poor diversification

The 3 months correlation between GM and USB is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of GM i.e., GM and US Bancorp go up and down completely randomly.

Pair Corralation between GM and US Bancorp

Allowing for the 90-day total investment horizon GM is expected to generate 2.02 times less return on investment than US Bancorp. In addition to that, GM is 1.11 times more volatile than US Bancorp. It trades about 0.08 of its total potential returns per unit of risk. US Bancorp is currently generating about 0.18 per unit of volatility. If you would invest  84,270  in US Bancorp on September 17, 2024 and sell it today you would earn a total of  20,674  from holding US Bancorp or generate 24.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.31%
Values	Daily Returns

General Motors  vs.  US Bancorp

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 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

US Bancorp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, US Bancorp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and US Bancorp

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

The idea behind General Motors and US Bancorp 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.

Check out your portfolio center.

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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.