Correlation Between GM and FlexShares STOXX

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

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

Diversification Opportunities for GM and FlexShares STOXX

-0.55

Correlation Coefficient

GM  FlexShares STOXX

Excellent diversification

The 3 months correlation between GM and FlexShares is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and FlexShares STOXX Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares STOXX Global 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 FlexShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares STOXX Global has no effect on the direction of GM i.e., GM and FlexShares STOXX go up and down completely randomly.

Pair Corralation between GM and FlexShares STOXX

Allowing for the 90-day total investment horizon General Motors is expected to generate 2.95 times more return on investment than FlexShares STOXX. However, GM is 2.95 times more volatile than FlexShares STOXX Global. It trades about 0.05 of its potential returns per unit of risk. FlexShares STOXX Global is currently generating about 0.06 per unit of risk. If you would invest  3,757  in General Motors on August 30, 2024 and sell it today you would earn a total of  1,793  from holding General Motors or generate 47.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  FlexShares STOXX Global

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.

FlexShares STOXX Global

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares STOXX Global are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, FlexShares STOXX 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 FlexShares STOXX

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

The idea behind General Motors and FlexShares STOXX Global 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.