Correlation Between GM and Berkshire Hathaway
Can any of the company-specific risk be diversified away by investing in both GM and Berkshire Hathaway 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 Berkshire Hathaway into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Berkshire Hathaway, you can compare the effects of market volatilities on GM and Berkshire Hathaway 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 Berkshire Hathaway. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Berkshire Hathaway.
Diversification Opportunities for GM and Berkshire Hathaway
-0.13 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and Berkshire is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Berkshire Hathaway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Berkshire Hathaway 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 Berkshire Hathaway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Berkshire Hathaway has no effect on the direction of GM i.e., GM and Berkshire Hathaway go up and down completely randomly.
Pair Corralation between GM and Berkshire Hathaway
Allowing for the 90-day total investment horizon GM is expected to generate 15.88 times less return on investment than Berkshire Hathaway. But when comparing it to its historical volatility, General Motors is 27.36 times less risky than Berkshire Hathaway. It trades about 0.09 of its potential returns per unit of risk. Berkshire Hathaway is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 51,250,000 in Berkshire Hathaway on August 30, 2024 and sell it today you would earn a total of 17,300,000 from holding Berkshire Hathaway or generate 33.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.73% |
| Values | Daily Returns |
General Motors vs. Berkshire Hathaway
Performance |
| Timeline |
| General Motors |
| Berkshire Hathaway |
GM and Berkshire Hathaway Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Berkshire Hathaway
The main advantage of trading using opposite GM and Berkshire Hathaway positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Berkshire Hathaway 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 Berkshire Hathaway will offset losses from the drop in Berkshire Hathaway's long position.The idea behind General Motors and Berkshire Hathaway 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.| Berkshire Hathaway vs. XLMedia PLC | Berkshire Hathaway vs. Nordic Semiconductor ASA | Berkshire Hathaway vs. REMEDY ENTERTAINMENT OYJ | Berkshire Hathaway vs. ZINC MEDIA GR |
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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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