Correlation Between GM and Basic Energy
Can any of the company-specific risk be diversified away by investing in both GM and Basic 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 Basic 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 Basic Energy Corp, you can compare the effects of market volatilities on GM and Basic 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 Basic Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Basic Energy.
Diversification Opportunities for GM and Basic Energy
-0.73 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between GM and Basic is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Basic Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basic Energy Corp 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 Basic Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basic Energy Corp has no effect on the direction of GM i.e., GM and Basic Energy go up and down completely randomly.
Pair Corralation between GM and Basic Energy
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.76 times more return on investment than Basic Energy. However, General Motors is 1.31 times less risky than Basic Energy. It trades about 0.17 of its potential returns per unit of risk. Basic Energy Corp is currently generating about -0.07 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
General Motors vs. Basic Energy Corp
Performance |
| Timeline |
| General Motors |
| Basic Energy Corp |
GM and Basic Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Basic Energy
The main advantage of trading using opposite GM and Basic Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Basic 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 Basic Energy will offset losses from the drop in Basic Energy's long position.The idea behind General Motors and Basic Energy Corp 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.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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
Other Complementary Tools
| FinTech Suite Use AI to screen and filter profitable investment opportunities | |
| Global Markets Map Get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes | |
| Analyst Advice Analyst recommendations and target price estimates broken down by several categories | |
| Economic Indicators Top statistical indicators that provide insights into how an economy is performing | |
| Odds Of Bankruptcy Get analysis of equity chance of financial distress in the next 2 years |