Correlation Between GM and Gold Bullion

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

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

Diversification Opportunities for GM and Gold Bullion

0.53

Correlation Coefficient

GM  Gold Bullion

Very weak diversification

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

Pair Corralation between GM and Gold Bullion

Allowing for the 90-day total investment horizon General Motors is expected to generate 2.68 times more return on investment than Gold Bullion. However, GM is 2.68 times more volatile than Gold Bullion Securities. It trades about 0.06 of its potential returns per unit of risk. Gold Bullion Securities is currently generating about 0.1 per unit of risk. If you would invest  4,793  in General Motors on September 23, 2024 and sell it today you would earn a total of  388.00  from holding General Motors or generate 8.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.48%
Values	Daily Returns

General Motors  vs.  Gold Bullion Securities

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) 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.

Gold Bullion Securities

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Bullion Securities are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Gold Bullion is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM and Gold Bullion

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

The idea behind General Motors and Gold Bullion Securities 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.