Correlation Between GM and Thornburg Limited

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

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

Diversification Opportunities for GM and Thornburg Limited

-0.67

Correlation Coefficient

GM  Thornburg Limited

Excellent diversification

The 3 months correlation between GM and Thornburg is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Thornburg Limited Term in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thornburg Limited Term 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 Thornburg Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thornburg Limited Term has no effect on the direction of GM i.e., GM and Thornburg Limited go up and down completely randomly.

Pair Corralation between GM and Thornburg Limited

Allowing for the 90-day total investment horizon General Motors is expected to generate 14.06 times more return on investment than Thornburg Limited. However, GM is 14.06 times more volatile than Thornburg Limited Term. It trades about 0.13 of its potential returns per unit of risk. Thornburg Limited Term is currently generating about -0.18 per unit of risk. If you would invest  4,474  in General Motors on September 28, 2024 and sell it today you would earn a total of  877.00  from holding General Motors or generate 19.6% return on investment over 90 days.

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

General Motors  vs.  Thornburg Limited Term

General Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) 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.

Thornburg Limited Term

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thornburg Limited Term has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Thornburg Limited 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 Thornburg Limited

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

The idea behind General Motors and Thornburg Limited Term 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.