Correlation Between GM and Ultra Short
Can any of the company-specific risk be diversified away by investing in both GM and Ultra Short 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 Ultra Short into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Ultra Short Income, you can compare the effects of market volatilities on GM and Ultra Short 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 Ultra Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Ultra Short.
Diversification Opportunities for GM and Ultra Short
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Ultra is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Ultra Short Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultra Short Income 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 Ultra Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultra Short Income has no effect on the direction of GM i.e., GM and Ultra Short go up and down completely randomly.
Pair Corralation between GM and Ultra Short
Allowing for the 90-day total investment horizon General Motors is expected to generate 20.02 times more return on investment than Ultra Short. However, GM is 20.02 times more volatile than Ultra Short Income. It trades about 0.06 of its potential returns per unit of risk. Ultra Short Income is currently generating about 0.23 per unit of risk. If you would invest 3,313 in General Motors on September 13, 2024 and sell it today you would earn a total of 1,961 from holding General Motors or generate 59.19% 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. Ultra Short Income
Performance |
| Timeline |
| General Motors |
| Ultra Short Income |
GM and Ultra Short Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Ultra Short
The main advantage of trading using opposite GM and Ultra Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Ultra Short 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 Ultra Short will offset losses from the drop in Ultra Short's long position.The idea behind General Motors and Ultra Short Income 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.| Ultra Short vs. Emerging Markets Equity | Ultra Short vs. Global Fixed Income | Ultra Short vs. Global Fixed Income | Ultra Short vs. Global Fixed Income |
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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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