Correlation Between GM and IShares SP
Can any of the company-specific risk be diversified away by investing in both GM and IShares 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 IShares 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 iShares SP Small Cap, you can compare the effects of market volatilities on GM and IShares 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 IShares SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and IShares SP.
Diversification Opportunities for GM and IShares SP
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and IShares is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and iShares SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SP Small 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 IShares SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SP Small has no effect on the direction of GM i.e., GM and IShares SP go up and down completely randomly.
Pair Corralation between GM and IShares SP
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.54 times more return on investment than IShares SP. However, GM is 1.54 times more volatile than iShares SP Small Cap. It trades about 0.12 of its potential returns per unit of risk. iShares SP Small Cap is currently generating about 0.09 per unit of risk. If you would invest 3,849 in General Motors on August 28, 2024 and sell it today you would earn a total of 2,171 from holding General Motors or generate 56.4% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. iShares SP Small Cap
Performance |
| Timeline |
| General Motors |
| iShares SP Small |
GM and IShares SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and IShares SP
The main advantage of trading using opposite GM and IShares SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, IShares 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 IShares SP will offset losses from the drop in IShares SP's long position.The idea behind General Motors and iShares SP Small Cap 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.| IShares SP vs. iShares SP Mid Cap | IShares SP vs. iShares SP Small Cap | IShares SP vs. iShares SP Mid Cap | IShares SP vs. iShares SP 500 |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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