Correlation Between GM and IShares Core

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

Diversification Opportunities for GM and IShares Core

-0.53

Correlation Coefficient

GM  IShares Core

Excellent diversification

The 3 months correlation between GM and IShares is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and iShares Core SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core SP 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 Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core SP has no effect on the direction of GM i.e., GM and IShares Core go up and down completely randomly.

Pair Corralation between GM and IShares Core

Allowing for the 90-day total investment horizon GM is expected to generate 1.22 times less return on investment than IShares Core. In addition to that, GM is 2.9 times more volatile than iShares Core SP. It trades about 0.04 of its total potential returns per unit of risk. iShares Core SP is currently generating about 0.14 per unit of volatility. If you would invest  3,366  in iShares Core SP on November 27, 2024 and sell it today you would earn a total of  1,923  from holding iShares Core SP or generate 57.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

General Motors  vs.  iShares Core SP

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 weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

iShares Core SP

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core SP are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares Core 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 Core

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

The idea behind General Motors and iShares Core SP 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.