Correlation Between GM and Bank First
Can any of the company-specific risk be diversified away by investing in both GM and Bank First 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 Bank First into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Bank First National, you can compare the effects of market volatilities on GM and Bank First 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 Bank First. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Bank First.
Diversification Opportunities for GM and Bank First
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between GM and Bank is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Bank First National in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank First National 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 Bank First. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank First National has no effect on the direction of GM i.e., GM and Bank First go up and down completely randomly.
Pair Corralation between GM and Bank First
Allowing for the 90-day total investment horizon GM is expected to generate 3.11 times less return on investment than Bank First. But when comparing it to its historical volatility, General Motors is 1.25 times less risky than Bank First. It trades about 0.07 of its potential returns per unit of risk. Bank First National is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 9,300 in Bank First National on August 28, 2024 and sell it today you would earn a total of 1,328 from holding Bank First National or generate 14.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Bank First National
Performance |
| Timeline |
| General Motors |
| Bank First National |
GM and Bank First Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Bank First
The main advantage of trading using opposite GM and Bank First positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Bank First 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 Bank First will offset losses from the drop in Bank First's long position.The idea behind General Motors and Bank First National 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.| Bank First vs. Fifth Third Bancorp | Bank First vs. Huntington Bancshares Incorporated | Bank First vs. MT Bank |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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