Correlation Between GM and IShares Morningstar
Can any of the company-specific risk be diversified away by investing in both GM and IShares Morningstar 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 Morningstar 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 Morningstar Small Cap, you can compare the effects of market volatilities on GM and IShares Morningstar 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 Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and IShares Morningstar.
Diversification Opportunities for GM and IShares Morningstar
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and IShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and iShares Morningstar Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Morningstar 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 Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Morningstar has no effect on the direction of GM i.e., GM and IShares Morningstar go up and down completely randomly.
Pair Corralation between GM and IShares Morningstar
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.01 times more return on investment than IShares Morningstar. However, GM is 2.01 times more volatile than iShares Morningstar Small Cap. It trades about 0.17 of its potential returns per unit of risk. iShares Morningstar Small Cap is currently generating about 0.3 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. iShares Morningstar Small Cap
Performance |
| Timeline |
| General Motors |
| iShares Morningstar |
GM and IShares Morningstar Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and IShares Morningstar
The main advantage of trading using opposite GM and IShares Morningstar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, IShares Morningstar 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 Morningstar will offset losses from the drop in IShares Morningstar's long position.The idea behind General Motors and iShares Morningstar 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 Morningstar vs. Vanguard Small Cap Value | IShares Morningstar vs. Dimensional Targeted Value | IShares Morningstar vs. SPDR SP 600 | IShares Morningstar vs. Avantis Small Cap |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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