Correlation Between GM and SPDR SP

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

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

Diversification Opportunities for GM and SPDR SP

0.06

Correlation Coefficient

GM  SPDR SP

Significant diversification

The 3 months correlation between GM and SPDR is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and SPDR SP Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Utilities 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Utilities has no effect on the direction of GM i.e., GM and SPDR SP go up and down completely randomly.

Pair Corralation between GM and SPDR SP

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the SPDR SP. In addition to that, GM is 3.48 times more volatile than SPDR SP Utilities. It trades about -0.15 of its total potential returns per unit of risk. SPDR SP Utilities is currently generating about -0.06 per unit of volatility. If you would invest  4,766  in SPDR SP Utilities on September 15, 2024 and sell it today you would lose (51.00) from holding SPDR SP Utilities or give up 1.07% of portfolio value over 90 days.

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

General Motors  vs.  SPDR SP Utilities

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.

SPDR SP Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SPDR SP Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with GM and SPDR SP

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

The idea behind General Motors and SPDR SP Utilities 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.