Correlation Between GM and Beta Finance

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

Diversification Opportunities for GM and Beta Finance

-0.08
  Correlation Coefficient

Good diversification

The 3 months correlation between GM and Beta Finance is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Beta Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beta Finance 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 Beta Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beta Finance has no effect on the direction of GM i.e., GM and Beta Finance go up and down completely randomly.

Pair Corralation between GM and Beta Finance

Allowing for the 90-day total investment horizon GM is expected to generate 2.64 times less return on investment than Beta Finance. But when comparing it to its historical volatility, General Motors is 3.18 times less risky than Beta Finance. It trades about 0.02 of its potential returns per unit of risk. Beta Finance is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Beta Finance on August 31, 2022 and sell it today you would lose (3.00)  from holding Beta Finance or give up 23.08% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy97.66%
ValuesDaily Returns

General Motors  vs.  Beta Finance

 Performance (%) 
       Timeline  
General Motors 
GM Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 2 (%) 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

Beta Finance 
Beta Finance Performance
2 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Beta Finance are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beta Finance sustained solid returns over the last few months and may actually be approaching a breakup point.

Beta Finance Price Channel

GM and Beta Finance Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GM and Beta Finance

The main advantage of trading using opposite GM and Beta Finance positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Beta Finance 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 Beta Finance will offset losses from the drop in Beta Finance's long position.
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The idea behind General Motors and Beta Finance 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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