Correlation Between Alphabet and GM

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

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

Diversification Opportunities for Alphabet and GM

0.38

Correlation Coefficient

Alphabet  GM

Weak diversification

The 3 months correlation between Alphabet and GM is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Alphabet Inc Class C and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Alphabet 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 Alphabet Inc Class C 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 Alphabet i.e., Alphabet and GM go up and down completely randomly.

Pair Corralation between Alphabet and GM

Given the investment horizon of 90 days Alphabet is expected to generate 2.64 times less return on investment than GM. But when comparing it to its historical volatility, Alphabet Inc Class C is 1.11 times less risky than GM. It trades about 0.07 of its potential returns per unit of risk. General Motors is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,905  in General Motors on January 19, 2024 and sell it today you would earn a total of  1,339  from holding General Motors or generate 46.09% return on investment over 90 days.

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

Alphabet Inc Class C  vs.  General Motors

Alphabet Class C

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc Class C are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Alphabet may actually be approaching a critical reversion point that can send shares even higher in May 2024.

General Motors

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 14 (%) 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 Alphabet and GM

The main advantage of trading using opposite Alphabet and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alphabet 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 Alphabet Inc Class C 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.