Correlation Between GM and IShares Infrastructure

Can any of the company-specific risk be diversified away by investing in both GM and IShares 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 IShares 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 iShares Infrastructure ETF, you can compare the effects of market volatilities on GM and IShares 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 IShares Infrastructure. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and IShares Infrastructure.

Diversification Opportunities for GM and IShares Infrastructure

0.89

Correlation Coefficient

GM  IShares Infrastructure

Very poor diversification

The 3 months correlation between GM and IShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and iShares Infrastructure ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares 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 IShares Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Infrastructure has no effect on the direction of GM i.e., GM and IShares Infrastructure go up and down completely randomly.

Pair Corralation between GM and IShares Infrastructure

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the IShares Infrastructure. In addition to that, GM is 2.17 times more volatile than iShares Infrastructure ETF. It trades about -0.05 of its total potential returns per unit of risk. iShares Infrastructure ETF is currently generating about -0.03 per unit of volatility. If you would invest  4,311  in iShares Infrastructure ETF on January 31, 2024 and sell it today you would lose (21.00) from holding iShares Infrastructure ETF or give up 0.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  iShares Infrastructure ETF

General Motors

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

iShares Infrastructure

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Infrastructure ETF are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, IShares Infrastructure may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with GM and IShares Infrastructure

The main advantage of trading using opposite GM and IShares Infrastructure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, IShares 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 IShares Infrastructure will offset losses from the drop in IShares Infrastructure's long position.

The idea behind General Motors and iShares Infrastructure ETF 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.

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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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.