Correlation Between GM and SPDR SP
Can any of the company-specific risk be diversified away by investing in both GM and SPDR SP 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 SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and SPDR SP Transportation, you can compare the effects of market volatilities on GM and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and SPDR SP.
Diversification Opportunities for GM and SPDR SP
Very poor diversification
The 3 months correlation between GM and SPDR is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and SPDR SP Transportation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Transportation 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Transportation has no effect on the direction of GM i.e., GM and SPDR SP go up and down completely randomly.
Pair Corralation between GM and SPDR SP
Allowing for the 90-day total investment horizon GM is expected to generate 1.37 times less return on investment than SPDR SP. In addition to that, GM is 1.55 times more volatile than SPDR SP Transportation. It trades about 0.13 of its total potential returns per unit of risk. SPDR SP Transportation is currently generating about 0.28 per unit of volatility. If you would invest 8,437 in SPDR SP Transportation on August 30, 2024 and sell it today you would earn a total of 978.00 from holding SPDR SP Transportation or generate 11.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. SPDR SP Transportation
Performance |
| Timeline |
| General Motors |
| SPDR SP Transportation |
GM and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and SPDR SP
The main advantage of trading using opposite GM and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, SPDR SP 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 SPDR SP will offset losses from the drop in SPDR SP's long position.The idea behind General Motors and SPDR SP Transportation 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.| SPDR SP vs. First Trust Exchange Traded | SPDR SP vs. Ultimus Managers Trust | SPDR SP vs. Horizon Kinetics Medical | SPDR SP vs. Harbor Health Care |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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