Correlation Between GM and BJC Heavy
Can any of the company-specific risk be diversified away by investing in both GM and BJC Heavy 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 BJC Heavy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and BJC Heavy Industries, you can compare the effects of market volatilities on GM and BJC Heavy 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 BJC Heavy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and BJC Heavy.
Diversification Opportunities for GM and BJC Heavy
Very good diversification
The 3 months correlation between GM and BJC is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and BJC Heavy Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJC Heavy Industries 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 BJC Heavy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJC Heavy Industries has no effect on the direction of GM i.e., GM and BJC Heavy go up and down completely randomly.
Pair Corralation between GM and BJC Heavy
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.84 times more return on investment than BJC Heavy. However, GM is 1.84 times more volatile than BJC Heavy Industries. It trades about 0.13 of its potential returns per unit of risk. BJC Heavy Industries is currently generating about -0.25 per unit of risk. If you would invest 5,154 in General Motors on August 30, 2024 and sell it today you would earn a total of 396.00 from holding General Motors or generate 7.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. BJC Heavy Industries
Performance |
| Timeline |
| General Motors |
| BJC Heavy Industries |
GM and BJC Heavy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and BJC Heavy
The main advantage of trading using opposite GM and BJC Heavy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, BJC Heavy 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 BJC Heavy will offset losses from the drop in BJC Heavy's long position.The idea behind General Motors and BJC Heavy Industries 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.| BJC Heavy vs. CH Karnchang Public | BJC Heavy vs. Asia Aviation Public | BJC Heavy vs. AAPICO Hitech Public | BJC Heavy vs. GFPT Public |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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