Correlation Between GM and Global Infrastructure
Can any of the company-specific risk be diversified away by investing in both GM and Global Infrastructure 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 Global Infrastructure into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Global Infrastructure Fund, you can compare the effects of market volatilities on GM and Global Infrastructure 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 Global Infrastructure. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Global Infrastructure.
Diversification Opportunities for GM and Global Infrastructure
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between GM and Global is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Global Infrastructure Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global Infrastructure 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 Global Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global Infrastructure has no effect on the direction of GM i.e., GM and Global Infrastructure go up and down completely randomly.
Pair Corralation between GM and Global Infrastructure
Allowing for the 90-day total investment horizon General Motors is expected to generate 3.66 times more return on investment than Global Infrastructure. However, GM is 3.66 times more volatile than Global Infrastructure Fund. It trades about 0.08 of its potential returns per unit of risk. Global Infrastructure Fund is currently generating about 0.13 per unit of risk. If you would invest 4,551 in General Motors on September 1, 2024 and sell it today you would earn a total of 1,008 from holding General Motors or generate 22.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.21% |
| Values | Daily Returns |
General Motors vs. Global Infrastructure Fund
Performance |
| Timeline |
| General Motors |
| Global Infrastructure |
GM and Global Infrastructure Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Global Infrastructure
The main advantage of trading using opposite GM and Global Infrastructure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Global Infrastructure 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 Global Infrastructure will offset losses from the drop in Global Infrastructure's long position.The idea behind General Motors and Global Infrastructure Fund 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.| Global Infrastructure vs. Franklin Emerging Market | Global Infrastructure vs. Investec Emerging Markets | Global Infrastructure vs. Black Oak Emerging | Global Infrastructure vs. Goldman Sachs Emerging |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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