Correlation Between GM and Bound
Can any of the company-specific risk be diversified away by investing in both GM and Bound 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 Bound into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Bound and Beyond, you can compare the effects of market volatilities on GM and Bound 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 Bound. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Bound.
Diversification Opportunities for GM and Bound
Very good diversification
The 3 months correlation between GM and Bound is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Bound and Beyond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bound and Beyond 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 Bound. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bound and Beyond has no effect on the direction of GM i.e., GM and Bound go up and down completely randomly.
Pair Corralation between GM and Bound
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.72 times more return on investment than Bound. However, GM is 1.72 times more volatile than Bound and Beyond. It trades about 0.14 of its potential returns per unit of risk. Bound and Beyond is currently generating about -0.02 per unit of risk. If you would invest 5,180 in General Motors on September 3, 2024 and sell it today you would earn a total of 379.00 from holding General Motors or generate 7.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
General Motors vs. Bound and Beyond
Performance |
| Timeline |
| General Motors |
| Bound and Beyond |
GM and Bound Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Bound
The main advantage of trading using opposite GM and Bound positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Bound 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 Bound will offset losses from the drop in Bound's long position.The idea behind General Motors and Bound and Beyond 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.| Bound vs. BCPG Public | Bound vs. Aqua Public | Bound vs. Energy Absolute Public | Bound vs. Bangkok Aviation Fuel |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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