Correlation Between GM and Item 9

Can any of the company-specific risk be diversified away by investing in both GM and Item 9 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 Item 9 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between General Motors and Item 9 Labs, you can compare the effects of market volatilities on GM and Item 9 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 Item 9. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Item 9.

Diversification Opportunities for GM and Item 9

0.11

Correlation Coefficient

GM  Item 9

Average diversification

The 3 months correlation between GM and Item is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Item 9 Labs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Item 9 Labs 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 Item 9. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Item 9 Labs has no effect on the direction of GM i.e., GM and Item 9 go up and down completely randomly.

Pair Corralation between GM and Item 9

Allowing for the 90-day total investment horizon GM is expected to generate 119.85 times less return on investment than Item 9. But when comparing it to its historical volatility, General Motors is 89.49 times less risky than Item 9. It trades about 0.12 of its potential returns per unit of risk. Item 9 Labs is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  0.16  in Item 9 Labs on September 15, 2024 and sell it today you would lose (0.15) from holding Item 9 Labs or give up 93.75% of portfolio value over 90 days.

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

General Motors  vs.  Item 9 Labs

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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.

Item 9 Labs

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Item 9 Labs are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Item 9 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Item 9

The main advantage of trading using opposite GM and Item 9 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Item 9 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 Item 9 will offset losses from the drop in Item 9's long position.

The idea behind General Motors and Item 9 Labs 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.