Correlation Between GM and Equity Growth

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

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

Diversification Opportunities for GM and Equity Growth

0.47

Correlation Coefficient

GM  Equity Growth

Very weak diversification

The 3 months correlation between GM and Equity is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Equity Growth Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth Strategy 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 Equity Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth Strategy has no effect on the direction of GM i.e., GM and Equity Growth go up and down completely randomly.

Pair Corralation between GM and Equity Growth

Allowing for the 90-day total investment horizon General Motors is expected to generate 4.4 times more return on investment than Equity Growth. However, GM is 4.4 times more volatile than Equity Growth Strategy. It trades about 0.09 of its potential returns per unit of risk. Equity Growth Strategy is currently generating about 0.09 per unit of risk. If you would invest  4,676  in General Motors on September 16, 2024 and sell it today you would earn a total of  577.00  from holding General Motors or generate 12.34% return on investment over 90 days.

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

General Motors  vs.  Equity Growth Strategy

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.

Equity Growth Strategy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Growth Strategy are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Equity Growth is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Equity Growth

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

The idea behind General Motors and Equity Growth Strategy 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.