Correlation Between GM and IShares SP

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

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

Diversification Opportunities for GM and IShares SP

0.47

Correlation Coefficient

GM  IShares SP

Very weak diversification

The 3 months correlation between GM and IShares is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and iShares SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Global 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 IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Global has no effect on the direction of GM i.e., GM and IShares SP go up and down completely randomly.

Pair Corralation between GM and IShares SP

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the IShares SP. In addition to that, GM is 2.36 times more volatile than iShares SP Global. It trades about -0.02 of its total potential returns per unit of risk. iShares SP Global is currently generating about 0.02 per unit of volatility. If you would invest  5,390  in iShares SP Global on October 23, 2024 and sell it today you would earn a total of  61.00  from holding iShares SP Global or generate 1.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

General Motors  vs.  iShares SP Global

General Motors

Risk-Adjusted Performance

0 of 100

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.

iShares SP Global

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares SP Global are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, IShares SP is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with GM and IShares SP

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

The idea behind General Motors and iShares SP Global 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.