Correlation Between GM and British Amer
Can any of the company-specific risk be diversified away by investing in both GM and British Amer 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 British Amer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and British American Tobacco, you can compare the effects of market volatilities on GM and British Amer 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 British Amer. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and British Amer.
Diversification Opportunities for GM and British Amer
-0.28 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and British is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British Amer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of GM i.e., GM and British Amer go up and down completely randomly.
Pair Corralation between GM and British Amer
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.41 times more return on investment than British Amer. However, GM is 2.41 times more volatile than British American Tobacco. It trades about 0.31 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.37 per unit of risk. If you would invest 5,273 in General Motors on August 28, 2024 and sell it today you would earn a total of 747.00 from holding General Motors or generate 14.17% 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. British American Tobacco
Performance |
| Timeline |
| General Motors |
| British American Tobacco |
GM and British Amer Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and British Amer
The main advantage of trading using opposite GM and British Amer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, British Amer 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 British Amer will offset losses from the drop in British Amer's long position.The idea behind General Motors and British American Tobacco 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.| British Amer vs. Imperial Brands PLC | British Amer vs. Philip Morris International | British Amer vs. Turning Point Brands | British Amer vs. Japan Tobacco ADR |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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