Correlation Between GM and Iberdrola

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

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

Diversification Opportunities for GM and Iberdrola

-0.44

Correlation Coefficient

GM  Iberdrola

Very good diversification

The 3 months correlation between GM and Iberdrola is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA 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 Iberdrola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iberdrola SA has no effect on the direction of GM i.e., GM and Iberdrola go up and down completely randomly.

Pair Corralation between GM and Iberdrola

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Iberdrola. In addition to that, GM is 2.95 times more volatile than Iberdrola SA. It trades about -0.23 of its total potential returns per unit of risk. Iberdrola SA is currently generating about -0.23 per unit of volatility. If you would invest  1,358  in Iberdrola SA on September 23, 2024 and sell it today you would lose (56.00) from holding Iberdrola SA or give up 4.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  Iberdrola SA

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 unfluctuating primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Iberdrola SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iberdrola SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Iberdrola is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and Iberdrola

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

The idea behind General Motors and Iberdrola SA 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.