Correlation Between GM and IHT

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

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

Diversification Opportunities for GM and IHT

0.17

Correlation Coefficient

GM  IHT

Average diversification

The 3 months correlation between GM and IHT is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and IHT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IHT 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 IHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IHT has no effect on the direction of GM i.e., GM and IHT go up and down completely randomly.

Pair Corralation between GM and IHT

Allowing for the 90-day total investment horizon GM is expected to generate 43.02 times less return on investment than IHT. But when comparing it to its historical volatility, General Motors is 20.81 times less risky than IHT. It trades about 0.1 of its potential returns per unit of risk. IHT is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  0.01  in IHT on September 1, 2024 and sell it today you would earn a total of  0.01  from holding IHT or generate 67.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.92%
Values	Daily Returns

General Motors  vs.  IHT

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.

IHT

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IHT are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, IHT exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and IHT

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

The idea behind General Motors and IHT 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 Global Correlations module to find global opportunities by holding instruments from different markets.