Correlation Between GM and Baker Hughes
Can any of the company-specific risk be diversified away by investing in both GM and Baker Hughes 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 Baker Hughes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Baker Hughes Co, you can compare the effects of market volatilities on GM and Baker Hughes 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 Baker Hughes. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Baker Hughes.
Diversification Opportunities for GM and Baker Hughes
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Baker is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Baker Hughes Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baker Hughes 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 Baker Hughes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baker Hughes has no effect on the direction of GM i.e., GM and Baker Hughes go up and down completely randomly.
Pair Corralation between GM and Baker Hughes
Allowing for the 90-day total investment horizon GM is expected to generate 1.71 times less return on investment than Baker Hughes. In addition to that, GM is 1.09 times more volatile than Baker Hughes Co. It trades about 0.17 of its total potential returns per unit of risk. Baker Hughes Co is currently generating about 0.31 per unit of volatility. If you would invest 3,438 in Baker Hughes Co on September 1, 2024 and sell it today you would earn a total of 668.00 from holding Baker Hughes Co or generate 19.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 91.3% |
| Values | Daily Returns |
General Motors vs. Baker Hughes Co
Performance |
| Timeline |
| General Motors |
| Baker Hughes |
GM and Baker Hughes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Baker Hughes
The main advantage of trading using opposite GM and Baker Hughes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Baker Hughes 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 Baker Hughes will offset losses from the drop in Baker Hughes' long position.The idea behind General Motors and Baker Hughes Co 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.| Baker Hughes vs. BOSTON BEER A | Baker Hughes vs. THAI BEVERAGE | Baker Hughes vs. Autohome ADR | Baker Hughes vs. MOLSON RS BEVERAGE |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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