Correlation Between IShares MSCI and GM

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Can any of the company-specific risk be diversified away by investing in both IShares MSCI and GM 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 IShares MSCI and GM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IShares MSCI USA and General Motors, you can compare the effects of market volatilities on IShares MSCI and GM 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 IShares MSCI with a short position of GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and GM.

Diversification Opportunities for IShares MSCI and GM

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between IShares and GM is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding IShares MSCI USA and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and IShares MSCI 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 IShares MSCI USA are associated (or correlated) with GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of IShares MSCI i.e., IShares MSCI and GM go up and down completely randomly.

Pair Corralation between IShares MSCI and GM

Given the investment horizon of 90 days IShares MSCI is expected to generate 1.03 times less return on investment than GM. But when comparing it to its historical volatility, IShares MSCI USA is 1.67 times less risky than GM. It trades about 0.04 of its potential returns per unit of risk. General Motors is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,961  in General Motors on December 30, 2023 and sell it today you would earn a total of  574.00  from holding General Motors or generate 14.49% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy99.8%
ValuesDaily Returns

IShares MSCI USA  vs.  General Motors

 Performance 
       Timeline  
IShares MSCI USA 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in IShares MSCI USA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal essential indicators, IShares MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2024.
General Motors 

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

IShares MSCI and GM Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares MSCI and GM

The main advantage of trading using opposite IShares MSCI and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, GM 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 GM will offset losses from the drop in GM's long position.
The idea behind IShares MSCI USA and General Motors 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.
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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