Correlation Between GM and American Funds
Can any of the company-specific risk be diversified away by investing in both GM and American Funds 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 American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and American Funds Income, you can compare the effects of market volatilities on GM and American Funds 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 American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and American Funds.
Diversification Opportunities for GM and American Funds
0.08 | Correlation Coefficient |
Significant diversification
The 3 months correlation between GM and American is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and American Funds Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds 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 American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Income has no effect on the direction of GM i.e., GM and American Funds go up and down completely randomly.
Pair Corralation between GM and American Funds
Allowing for the 90-day total investment horizon General Motors is expected to generate 5.42 times more return on investment than American Funds. However, GM is 5.42 times more volatile than American Funds Income. It trades about 0.06 of its potential returns per unit of risk. American Funds Income is currently generating about 0.11 per unit of risk. If you would invest 3,283 in General Motors on September 12, 2024 and sell it today you would earn a total of 1,991 from holding General Motors or generate 60.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.8% |
| Values | Daily Returns |
General Motors vs. American Funds Income
Performance |
| Timeline |
| General Motors |
| American Funds Income |
GM and American Funds Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and American Funds
The main advantage of trading using opposite GM and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, American Funds 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 American Funds will offset losses from the drop in American Funds' long position.The idea behind General Motors and American Funds 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.| American Funds vs. Guidemark Smallmid Cap | American Funds vs. Pace Smallmedium Value | American Funds vs. Kinetics Small Cap | American Funds vs. Mutual Of America |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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