Correlation Between GM and Texas Instruments

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

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

Diversification Opportunities for GM and Texas Instruments

0.69

Correlation Coefficient

GM  Texas Instruments

Poor diversification

The 3 months correlation between GM and Texas is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Texas Instruments Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Instruments 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 Texas Instruments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Instruments has no effect on the direction of GM i.e., GM and Texas Instruments go up and down completely randomly.

Pair Corralation between GM and Texas Instruments

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Texas Instruments. In addition to that, GM is 2.33 times more volatile than Texas Instruments Incorporated. It trades about -0.31 of its total potential returns per unit of risk. Texas Instruments Incorporated is currently generating about -0.42 per unit of volatility. If you would invest  411,600  in Texas Instruments Incorporated on September 24, 2024 and sell it today you would lose (31,600) from holding Texas Instruments Incorporated or give up 7.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

General Motors  vs.  Texas Instruments Incorporated

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.

Texas Instruments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Texas Instruments Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Texas Instruments 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 Texas Instruments

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

The idea behind General Motors and Texas Instruments Incorporated 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.