Correlation Between GM and International Research

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

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

Diversification Opportunities for GM and International Research

-0.8

Correlation Coefficient

GM  International Research

Pay attention - limited upside

The 3 months correlation between GM and International is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and International Research in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Research 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 International Research. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Research has no effect on the direction of GM i.e., GM and International Research go up and down completely randomly.

Pair Corralation between GM and International Research

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the International Research. In addition to that, GM is 1.76 times more volatile than International Research. It trades about -0.13 of its total potential returns per unit of risk. International Research is currently generating about -0.06 per unit of volatility. If you would invest  53.00  in International Research on September 16, 2024 and sell it today you would lose (1.00) from holding International Research or give up 1.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  International Research

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.

International Research

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Research has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with GM and International Research

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

The idea behind General Motors and International Research 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.