Correlation Between GM and BMTC
Can any of the company-specific risk be diversified away by investing in both GM and BMTC 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 BMTC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and BMTC Group, you can compare the effects of market volatilities on GM and BMTC 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 BMTC. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and BMTC.
Diversification Opportunities for GM and BMTC
Very weak diversification
The 3 months correlation between GM and BMTC is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and BMTC Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMTC Group 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 BMTC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMTC Group has no effect on the direction of GM i.e., GM and BMTC go up and down completely randomly.
Pair Corralation between GM and BMTC
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.33 times more return on investment than BMTC. However, GM is 1.33 times more volatile than BMTC Group. It trades about 0.05 of its potential returns per unit of risk. BMTC Group is currently generating about 0.03 per unit of risk. If you would invest 3,757 in General Motors on August 30, 2024 and sell it today you would earn a total of 1,793 from holding General Motors or generate 47.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
General Motors vs. BMTC Group
Performance |
| Timeline |
| General Motors |
| BMTC Group |
GM and BMTC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and BMTC
The main advantage of trading using opposite GM and BMTC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, BMTC 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 BMTC will offset losses from the drop in BMTC's long position.The idea behind General Motors and BMTC Group 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.| BMTC vs. Eros Resources Corp | BMTC vs. Apple Inc CDR | BMTC vs. European Residential Real | BMTC vs. Canadian Utilities Ltd |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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