Correlation Between GM and BYD Company
Can any of the company-specific risk be diversified away by investing in both GM and BYD Company 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 BYD Company into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and BYD Company Limited, you can compare the effects of market volatilities on GM and BYD Company 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 BYD Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and BYD Company.
Diversification Opportunities for GM and BYD Company
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between GM and BYD is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and BYD Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Limited 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 BYD Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Limited has no effect on the direction of GM i.e., GM and BYD Company go up and down completely randomly.
Pair Corralation between GM and BYD Company
Allowing for the 90-day total investment horizon GM is expected to generate 1.78 times less return on investment than BYD Company. But when comparing it to its historical volatility, General Motors is 1.16 times less risky than BYD Company. It trades about 0.04 of its potential returns per unit of risk. BYD Company Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 2,842 in BYD Company Limited on November 27, 2024 and sell it today you would earn a total of 2,074 from holding BYD Company Limited or generate 72.98% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
General Motors vs. BYD Company Limited
Performance |
Timeline |
General Motors |
BYD Limited |
GM and BYD Company Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GM and BYD Company
The main advantage of trading using opposite GM and BYD Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, BYD Company 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 BYD Company will offset losses from the drop in BYD Company's long position.The idea behind General Motors and BYD Company Limited 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.BYD Company vs. Li Auto | ||
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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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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