Correlation Between GM and Bengal Energy
Can any of the company-specific risk be diversified away by investing in both GM and Bengal Energy 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 Bengal Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Bengal Energy, you can compare the effects of market volatilities on GM and Bengal Energy 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 Bengal Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Bengal Energy.
Diversification Opportunities for GM and Bengal Energy
-0.44 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and Bengal is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Bengal Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bengal Energy 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 Bengal Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bengal Energy has no effect on the direction of GM i.e., GM and Bengal Energy go up and down completely randomly.
Pair Corralation between GM and Bengal Energy
Allowing for the 90-day total investment horizon GM is expected to generate 13.85 times less return on investment than Bengal Energy. But when comparing it to its historical volatility, General Motors is 9.54 times less risky than Bengal Energy. It trades about 0.07 of its potential returns per unit of risk. Bengal Energy is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1.00 in Bengal Energy on August 29, 2024 and sell it today you would earn a total of 0.05 from holding Bengal Energy or generate 5.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Bengal Energy
Performance |
| Timeline |
| General Motors |
| Bengal Energy |
GM and Bengal Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Bengal Energy
The main advantage of trading using opposite GM and Bengal Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Bengal Energy 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 Bengal Energy will offset losses from the drop in Bengal Energy's long position.The idea behind General Motors and Bengal Energy 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.| Bengal Energy vs. Petroleo Brasileiro Petrobras | Bengal Energy vs. Equinor ASA ADR | Bengal Energy vs. Eni SpA ADR | Bengal Energy vs. YPF Sociedad Anonima |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
Other Complementary Tools
| Pair Correlation Compare performance and examine fundamental relationship between any two equity instruments | |
| AI Portfolio Architect Use AI to generate optimal portfolios and find profitable investment opportunities | |
| Portfolio Center All portfolio management and optimization tools to improve performance of your portfolios | |
| CEOs Directory Screen CEOs from public companies around the world | |
| Sync Your Broker Sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors. |