Correlation Between GM and SPX Corp
Can any of the company-specific risk be diversified away by investing in both GM and SPX Corp 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 SPX Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and SPX Corp, you can compare the effects of market volatilities on GM and SPX Corp 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 SPX Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and SPX Corp.
Diversification Opportunities for GM and SPX Corp
Very weak diversification
The 3 months correlation between GM and SPX is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and SPX Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPX Corp 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 SPX Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPX Corp has no effect on the direction of GM i.e., GM and SPX Corp go up and down completely randomly.
Pair Corralation between GM and SPX Corp
Allowing for the 90-day total investment horizon GM is expected to generate 2.14 times less return on investment than SPX Corp. In addition to that, GM is 1.25 times more volatile than SPX Corp. It trades about 0.17 of its total potential returns per unit of risk. SPX Corp is currently generating about 0.45 per unit of volatility. If you would invest 14,349 in SPX Corp on September 1, 2024 and sell it today you would earn a total of 3,295 from holding SPX Corp or generate 22.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. SPX Corp
Performance |
| Timeline |
| General Motors |
| SPX Corp |
GM and SPX Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and SPX Corp
The main advantage of trading using opposite GM and SPX Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, SPX Corp 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 SPX Corp will offset losses from the drop in SPX Corp's long position.The idea behind General Motors and SPX Corp 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.| SPX Corp vs. Standex International | SPX Corp vs. Enpro Industries | SPX Corp vs. Thermon Group Holdings | SPX Corp vs. Enerpac Tool Group |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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