Correlation Between GM and IMCO Industries

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

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

Diversification Opportunities for GM and IMCO Industries

0.82

Correlation Coefficient

GM  IMCO Industries

Very poor diversification

The 3 months correlation between GM and IMCO is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and IMCO Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IMCO Industries 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 IMCO Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IMCO Industries has no effect on the direction of GM i.e., GM and IMCO Industries go up and down completely randomly.

Pair Corralation between GM and IMCO Industries

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the IMCO Industries. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.69 times less risky than IMCO Industries. The stock trades about -0.07 of its potential returns per unit of risk. The IMCO Industries is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  325,100  in IMCO Industries on September 27, 2024 and sell it today you would earn a total of  17,200  from holding IMCO Industries or generate 5.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	85.71%
Values	Daily Returns

General Motors  vs.  IMCO Industries

General Motors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 8 (%) 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.

IMCO Industries

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IMCO Industries are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, IMCO Industries sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and IMCO Industries

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

The idea behind General Motors and IMCO Industries 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.