Correlation Between GM and IShares SPTSX
Can any of the company-specific risk be diversified away by investing in both GM and IShares SPTSX 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 SPTSX 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 SPTSX Small, you can compare the effects of market volatilities on GM and IShares SPTSX 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 SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and IShares SPTSX.
Diversification Opportunities for GM and IShares SPTSX
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between GM and IShares is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and iShares SPTSX Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX Small 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 SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX Small has no effect on the direction of GM i.e., GM and IShares SPTSX go up and down completely randomly.
Pair Corralation between GM and IShares SPTSX
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.25 times more return on investment than IShares SPTSX. However, GM is 2.25 times more volatile than iShares SPTSX Small. It trades about 0.08 of its potential returns per unit of risk. iShares SPTSX Small is currently generating about 0.09 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 | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. iShares SPTSX Small
Performance |
| Timeline |
| General Motors |
| iShares SPTSX Small |
GM and IShares SPTSX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and IShares SPTSX
The main advantage of trading using opposite GM and IShares SPTSX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, IShares SPTSX 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 SPTSX will offset losses from the drop in IShares SPTSX's long position.The idea behind General Motors and iShares SPTSX Small 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 SPTSX vs. iShares Convertible Bond | IShares SPTSX vs. iShares SP Mid Cap | IShares SPTSX vs. iShares Edge MSCI | IShares SPTSX vs. iShares Flexible Monthly |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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