Correlation Between GM and The Fixed

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

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

Diversification Opportunities for GM and The Fixed

-0.37

Correlation Coefficient

GM  The Fixed

Very good diversification

The 3 months correlation between GM and THE is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and The Fixed Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fixed Income 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 The Fixed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fixed Income has no effect on the direction of GM i.e., GM and The Fixed go up and down completely randomly.

Pair Corralation between GM and The Fixed

Allowing for the 90-day total investment horizon General Motors is expected to generate 6.87 times more return on investment than The Fixed. However, GM is 6.87 times more volatile than The Fixed Income. It trades about 0.08 of its potential returns per unit of risk. The Fixed Income is currently generating about 0.13 per unit of risk. If you would invest  4,483  in General Motors on September 3, 2024 and sell it today you would earn a total of  1,076  from holding General Motors or generate 24.0% return on investment over 90 days.

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

General Motors  vs.  The Fixed Income

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.

Fixed Income

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Fixed Income are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, The Fixed is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and The Fixed

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

The idea behind General Motors and The Fixed Income 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.