Correlation Between GM and Blue Earth
Can any of the company-specific risk be diversified away by investing in both GM and Blue Earth 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 Blue Earth into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Blue Earth Resources, you can compare the effects of market volatilities on GM and Blue Earth 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 Blue Earth. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Blue Earth.
Diversification Opportunities for GM and Blue Earth
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between GM and Blue is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Blue Earth Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Earth Resources 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 Blue Earth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Earth Resources has no effect on the direction of GM i.e., GM and Blue Earth go up and down completely randomly.
Pair Corralation between GM and Blue Earth
Allowing for the 90-day total investment horizon GM is expected to generate 27.61 times less return on investment than Blue Earth. But when comparing it to its historical volatility, General Motors is 13.62 times less risky than Blue Earth. It trades about 0.12 of its potential returns per unit of risk. Blue Earth Resources is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest 1.30 in Blue Earth Resources on September 4, 2024 and sell it today you would earn a total of 2.20 from holding Blue Earth Resources or generate 169.23% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Blue Earth Resources
Performance |
| Timeline |
| General Motors |
| Blue Earth Resources |
GM and Blue Earth Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Blue Earth
The main advantage of trading using opposite GM and Blue Earth positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Blue Earth 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 Blue Earth will offset losses from the drop in Blue Earth's long position.The idea behind General Motors and Blue Earth Resources 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.| Blue Earth vs. Delek Energy | Blue Earth vs. PBF Energy | Blue Earth vs. HF Sinclair Corp | Blue Earth vs. Delek Logistics Partners |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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