Correlation Between GM and Garrett Motion

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

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

Diversification Opportunities for GM and Garrett Motion

0.04

Correlation Coefficient

GM  Garrett Motion

Significant diversification

The 3 months correlation between GM and Garrett is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Garrett Motion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garrett Motion 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 Garrett Motion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garrett Motion has no effect on the direction of GM i.e., GM and Garrett Motion go up and down completely randomly.

Pair Corralation between GM and Garrett Motion

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.99 times more return on investment than Garrett Motion. However, General Motors is 1.01 times less risky than Garrett Motion. It trades about 0.05 of its potential returns per unit of risk. Garrett Motion is currently generating about 0.03 per unit of risk. If you would invest  3,517  in General Motors on September 29, 2024 and sell it today you would earn a total of  1,911  from holding General Motors or generate 54.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Garrett Motion

General Motors

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 11 (%) 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.

Garrett Motion

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Garrett Motion are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Garrett Motion may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Garrett Motion

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

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