Correlation Between GM and IShares ESG

Can any of the company-specific risk be diversified away by investing in both GM and IShares ESG 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 ESG 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 ESG MSCI, you can compare the effects of market volatilities on GM and IShares ESG 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 ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and IShares ESG.

Diversification Opportunities for GM and IShares ESG

0.62

Correlation Coefficient

GM  IShares ESG

Poor diversification

The 3 months correlation between GM and IShares is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and iShares ESG MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares ESG MSCI 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 ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares ESG MSCI has no effect on the direction of GM i.e., GM and IShares ESG go up and down completely randomly.

Pair Corralation between GM and IShares ESG

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the IShares ESG. In addition to that, GM is 1.37 times more volatile than iShares ESG MSCI. It trades about -0.09 of its total potential returns per unit of risk. iShares ESG MSCI is currently generating about -0.11 per unit of volatility. If you would invest  4,672  in iShares ESG MSCI on October 7, 2024 and sell it today you would lose (114.00) from holding iShares ESG MSCI or give up 2.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

General Motors  vs.  iShares ESG MSCI

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

iShares ESG MSCI

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG MSCI are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with GM and IShares ESG

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

The idea behind General Motors and iShares ESG MSCI 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.