Correlation Between GM and WisdomTree Battery

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

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

Diversification Opportunities for GM and WisdomTree Battery

-0.41

Correlation Coefficient

GM  WisdomTree Battery

Very good diversification

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

Pair Corralation between GM and WisdomTree Battery

Allowing for the 90-day total investment horizon General Motors is expected to generate 3.27 times more return on investment than WisdomTree Battery. However, GM is 3.27 times more volatile than WisdomTree Battery Metals. It trades about 0.08 of its potential returns per unit of risk. WisdomTree Battery Metals is currently generating about -0.14 per unit of risk. If you would invest  4,645  in General Motors on December 10, 2024 and sell it today you would earn a total of  163.00  from holding General Motors or generate 3.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  WisdomTree Battery Metals

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.

WisdomTree Battery Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree Battery Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, WisdomTree Battery is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM and WisdomTree Battery

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

The idea behind General Motors and WisdomTree Battery Metals 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.