Correlation Between GM and Bread Financial
Can any of the company-specific risk be diversified away by investing in both GM and Bread Financial 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 Bread Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Bread Financial Holdings, you can compare the effects of market volatilities on GM and Bread Financial 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 Bread Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Bread Financial.
Diversification Opportunities for GM and Bread Financial
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Bread is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings 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 Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of GM i.e., GM and Bread Financial go up and down completely randomly.
Pair Corralation between GM and Bread Financial
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.71 times more return on investment than Bread Financial. However, General Motors is 1.41 times less risky than Bread Financial. It trades about 0.1 of its potential returns per unit of risk. Bread Financial Holdings is currently generating about 0.02 per unit of risk. If you would invest 4,829 in General Motors on August 31, 2024 and sell it today you would earn a total of 721.00 from holding General Motors or generate 14.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Bread Financial Holdings
Performance |
| Timeline |
| General Motors |
| Bread Financial Holdings |
GM and Bread Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Bread Financial
The main advantage of trading using opposite GM and Bread Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Bread Financial 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 Bread Financial will offset losses from the drop in Bread Financial's long position.The idea behind General Motors and Bread Financial Holdings 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.| Bread Financial vs. SLM Corp | Bread Financial vs. Orix Corp Ads | Bread Financial vs. FirstCash | Bread Financial vs. Medallion Financial Corp |
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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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