Correlation Between GM and Balancer

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Can any of the company-specific risk be diversified away by investing in both GM and Balancer 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 Balancer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Balancer, you can compare the effects of market volatilities on GM and Balancer 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 Balancer. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Balancer.

Diversification Opportunities for GM and Balancer

0.4
  Correlation Coefficient

Very weak diversification

The 3 months correlation between GM and Balancer is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Balancer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Balancer 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 Balancer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Balancer has no effect on the direction of GM i.e., GM and Balancer go up and down completely randomly.

Pair Corralation between GM and Balancer

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.43 times more return on investment than Balancer. However, General Motors is 2.35 times less risky than Balancer. It trades about 0.17 of its potential returns per unit of risk. Balancer is currently generating about 0.05 per unit of risk. If you would invest  3,326  in General Motors on August 30, 2022 and sell it today you would earn a total of  612.00  from holding General Motors or generate 18.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy97.73%
ValuesDaily Returns

General Motors  vs.  Balancer

 Performance (%) 
       Timeline  
General Motors 
GM Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady primary indicators, GM is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

GM Price Channel

Balancer 
Balancer Performance
0 of 100
Over the last 90 days Balancer has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Balancer is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Balancer Price Channel

GM and Balancer Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and Balancer

The main advantage of trading using opposite GM and Balancer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Balancer 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 Balancer will offset losses from the drop in Balancer's long position.
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The idea behind General Motors and Balancer 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.
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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.

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