Correlation Between GM and Foreign Bond
Can any of the company-specific risk be diversified away by investing in both GM and Foreign Bond 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 Foreign Bond into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Foreign Bond Fund, you can compare the effects of market volatilities on GM and Foreign Bond 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 Foreign Bond. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Foreign Bond.
Diversification Opportunities for GM and Foreign Bond
0.11 | Correlation Coefficient |
Average diversification
The 3 months correlation between GM and Foreign is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Foreign Bond Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Bond 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 Foreign Bond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Bond has no effect on the direction of GM i.e., GM and Foreign Bond go up and down completely randomly.
Pair Corralation between GM and Foreign Bond
Allowing for the 90-day total investment horizon General Motors is expected to generate 4.92 times more return on investment than Foreign Bond. However, GM is 4.92 times more volatile than Foreign Bond Fund. It trades about 0.11 of its potential returns per unit of risk. Foreign Bond Fund is currently generating about -0.26 per unit of risk. If you would invest 4,355 in General Motors on January 25, 2024 and sell it today you would earn a total of 155.00 from holding General Motors or generate 3.56% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Foreign Bond Fund
Performance |
| Timeline |
| General Motors |
| Foreign Bond |
GM and Foreign Bond Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Foreign Bond
The main advantage of trading using opposite GM and Foreign Bond positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Foreign Bond 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 Foreign Bond will offset losses from the drop in Foreign Bond's long position.The idea behind General Motors and Foreign Bond Fund 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.| Foreign Bond vs. Pimco Rae Worldwide | Foreign Bond vs. Pimco Rae Worldwide | Foreign Bond vs. Pimco Rae Worldwide | Foreign Bond vs. Pimco Rae Worldwide |
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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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