Correlation Between GM and Gmo Equity

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Can any of the company-specific risk be diversified away by investing in both GM and Gmo Equity 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 Gmo Equity into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Gmo Equity Allocation, you can compare the effects of market volatilities on GM and Gmo Equity 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 Gmo Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Gmo Equity.

Diversification Opportunities for GM and Gmo Equity

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between GM and Gmo is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Gmo Equity Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Equity Allocation 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 Gmo Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Equity Allocation has no effect on the direction of GM i.e., GM and Gmo Equity go up and down completely randomly.

Pair Corralation between GM and Gmo Equity

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.31 times more return on investment than Gmo Equity. However, GM is 1.31 times more volatile than Gmo Equity Allocation. It trades about -0.14 of its potential returns per unit of risk. Gmo Equity Allocation is currently generating about -0.22 per unit of risk. If you would invest  5,753  in General Motors on September 12, 2024 and sell it today you would lose (479.00) from holding General Motors or give up 8.33% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

General Motors  vs.  Gmo Equity Allocation

 Performance 
       Timeline  
General Motors 

Risk-Adjusted Performance

7 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.
Gmo Equity Allocation 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Gmo Equity Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Gmo Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

GM and Gmo Equity Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and Gmo Equity

The main advantage of trading using opposite GM and Gmo Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Gmo Equity 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 Gmo Equity will offset losses from the drop in Gmo Equity's long position.
The idea behind General Motors and Gmo Equity Allocation 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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