Correlation Between GM and Wex

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

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

Diversification Opportunities for GM and Wex

0.56

Correlation Coefficient

GM  Wex

Very weak diversification

The 3 months correlation between GM and Wex is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Wex Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wex Inc 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 Wex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wex Inc has no effect on the direction of GM i.e., GM and Wex go up and down completely randomly.

Pair Corralation between GM and Wex

Allowing for the 90-day total investment horizon GM is expected to generate 1.23 times less return on investment than Wex. In addition to that, GM is 1.16 times more volatile than Wex Inc. It trades about 0.03 of its total potential returns per unit of risk. Wex Inc is currently generating about 0.04 per unit of volatility. If you would invest  15,410  in Wex Inc on February 3, 2024 and sell it today you would earn a total of  5,667  from holding Wex Inc or generate 36.77% return on investment over 90 days.

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

General Motors  vs.  Wex Inc

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 unfluctuating primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

Wex Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Wex Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain technical and fundamental indicators, Wex may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with GM and Wex

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

The idea behind General Motors and Wex Inc 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.