Correlation Between GM and IShares MSCI

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

Diversification Opportunities for GM and IShares MSCI

0.73

Correlation Coefficient

GM  IShares MSCI

Poor diversification

The 3 months correlation between GM and IShares is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and iShares MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI USA 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI USA has no effect on the direction of GM i.e., GM and IShares MSCI go up and down completely randomly.

Pair Corralation between GM and IShares MSCI

Allowing for the 90-day total investment horizon GM is expected to generate 1.28 times less return on investment than IShares MSCI. In addition to that, GM is 1.93 times more volatile than iShares MSCI USA. It trades about 0.02 of its total potential returns per unit of risk. iShares MSCI USA is currently generating about 0.04 per unit of volatility. If you would invest  12,526  in iShares MSCI USA on January 24, 2024 and sell it today you would earn a total of  3,062  from holding iShares MSCI USA or generate 24.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

General Motors  vs.  iShares MSCI USA

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.

iShares MSCI USA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI USA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with GM and IShares MSCI

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

The idea behind General Motors and iShares MSCI USA 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.