Correlation Between GM and Baytex Energy
Can any of the company-specific risk be diversified away by investing in both GM and Baytex 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 Baytex 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 Baytex Energy Corp, you can compare the effects of market volatilities on GM and Baytex 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 Baytex Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Baytex Energy.
Diversification Opportunities for GM and Baytex Energy
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between GM and Baytex is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Baytex Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baytex 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 Baytex Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baytex Energy Corp has no effect on the direction of GM i.e., GM and Baytex Energy go up and down completely randomly.
Pair Corralation between GM and Baytex Energy
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.8 times more return on investment than Baytex Energy. However, General Motors is 1.25 times less risky than Baytex Energy. It trades about 0.05 of its potential returns per unit of risk. Baytex Energy Corp is currently generating about -0.01 per unit of risk. If you would invest 3,510 in General Motors on November 1, 2024 and sell it today you would earn a total of 1,440 from holding General Motors or generate 41.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.79% |
| Values | Daily Returns |
General Motors vs. Baytex Energy Corp
Performance |
| Timeline |
| General Motors |
| Baytex Energy Corp |
GM and Baytex Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Baytex Energy
The main advantage of trading using opposite GM and Baytex Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Baytex 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 Baytex Energy will offset losses from the drop in Baytex Energy's long position.The idea behind General Motors and Baytex 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.| Baytex Energy vs. MEG Energy Corp | Baytex Energy vs. Whitecap Resources | Baytex Energy vs. Athabasca Oil Corp | Baytex Energy vs. Cenovus Energy |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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