Correlation Between GM and Multimanager Lifestyle

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

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

Diversification Opportunities for GM and Multimanager Lifestyle

0.5

Correlation Coefficient

GM  Multimanager Lifestyle

Very weak diversification

The 3 months correlation between GM and Multimanager is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Multimanager Lifestyle Aggress in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Multimanager Lifestyle 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 Multimanager Lifestyle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Multimanager Lifestyle has no effect on the direction of GM i.e., GM and Multimanager Lifestyle go up and down completely randomly.

Pair Corralation between GM and Multimanager Lifestyle

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Multimanager Lifestyle. In addition to that, GM is 3.7 times more volatile than Multimanager Lifestyle Aggressive. It trades about -0.11 of its total potential returns per unit of risk. Multimanager Lifestyle Aggressive is currently generating about -0.13 per unit of volatility. If you would invest  1,534  in Multimanager Lifestyle Aggressive on September 22, 2024 and sell it today you would lose (32.00) from holding Multimanager Lifestyle Aggressive or give up 2.09% of portfolio value over 90 days.

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

General Motors  vs.  Multimanager Lifestyle Aggress

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

Multimanager Lifestyle

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Multimanager Lifestyle Aggressive has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Multimanager Lifestyle is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Multimanager Lifestyle

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

The idea behind General Motors and Multimanager Lifestyle Aggressive 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.