Correlation Between BYD Co and GM
Can any of the company-specific risk be diversified away by investing in both BYD Co 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 BYD Co and GM into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BYD Co Ltd and General Motors, you can compare the effects of market volatilities on BYD Co 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 BYD Co with a short position of GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and GM.
Diversification Opportunities for BYD Co and GM
Good diversification
The 3 months correlation between BYD and GM is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and BYD Co 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 BYD Co Ltd 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 BYD Co i.e., BYD Co and GM go up and down completely randomly.
Pair Corralation between BYD Co and GM
Assuming the 90 days horizon BYD Co Ltd is expected to generate 0.85 times more return on investment than GM. However, BYD Co Ltd is 1.17 times less risky than GM. It trades about 0.03 of its potential returns per unit of risk. General Motors is currently generating about -0.16 per unit of risk. If you would invest 6,984 in BYD Co Ltd on September 14, 2024 and sell it today you would earn a total of 49.00 from holding BYD Co Ltd or generate 0.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BYD Co Ltd vs. General Motors
Performance |
| Timeline |
| BYD Co |
| General Motors |
BYD Co and GM Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BYD Co and GM
The main advantage of trading using opposite BYD Co and GM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Co 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 BYD Co Ltd 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.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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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