Correlation Between Boeing and GM

Can any of the company-specific risk be diversified away by investing in both Boeing 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 Boeing and GM into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Boeing and General Motors, you can compare the effects of market volatilities on Boeing 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 Boeing with a short position of GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boeing and GM.

Diversification Opportunities for Boeing and GM

-0.74

Correlation Coefficient

Boeing  GM

Pay attention - limited upside

The 3 months correlation between Boeing and GM is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding The Boeing and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Boeing 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 The Boeing 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 Boeing i.e., Boeing and GM go up and down completely randomly.

Pair Corralation between Boeing and GM

Allowing for the 90-day total investment horizon The Boeing is expected to under-perform the GM. But the stock apears to be less risky and, when comparing its historical volatility, The Boeing is 1.33 times less risky than GM. The stock trades about -0.49 of its potential returns per unit of risk. The General Motors is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,355  in General Motors on January 24, 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 Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

The Boeing  vs.  General Motors

Boeing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Boeing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

General Motors

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 17 (%) 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.

Pair Trading with Boeing and GM

The main advantage of trading using opposite Boeing and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boeing 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 The Boeing 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.

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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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.