Correlation Between General Electric and Industrias Bachoco

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

Diversification Opportunities for General Electric and Industrias Bachoco

0.88
  Correlation Coefficient

Very poor diversification

The 3 months correlation between General and Industrias is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Industrias Bachoco SAB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrias Bachoco SAB and General Electric 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 Electric are associated (or correlated) with Industrias Bachoco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrias Bachoco SAB has no effect on the direction of General Electric i.e., General Electric and Industrias Bachoco go up and down completely randomly.

Pair Corralation between General Electric and Industrias Bachoco

Allowing for the 90-day total investment horizon General Electric is expected to generate 0.91 times more return on investment than Industrias Bachoco. However, General Electric is 1.1 times less risky than Industrias Bachoco. It trades about 0.23 of its potential returns per unit of risk. Industrias Bachoco SAB is currently generating about 0.03 per unit of risk. If you would invest  8,107  in General Electric on September 5, 2022 and sell it today you would earn a total of  581.00  from holding General Electric or generate 7.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  Industrias Bachoco SAB

 Performance (%) 
       Timeline  
General Electric 
General Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, General Electric exhibited solid returns over the last few months and may actually be approaching a breakup point.

General Price Channel

Industrias Bachoco SAB 
Industrias Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Industrias Bachoco SAB are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Industrias Bachoco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Industrias Price Channel

General Electric and Industrias Bachoco Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and Industrias Bachoco

The main advantage of trading using opposite General Electric and Industrias Bachoco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric position performs unexpectedly, Industrias Bachoco 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 Industrias Bachoco will offset losses from the drop in Industrias Bachoco's long position.
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The idea behind General Electric and Industrias Bachoco SAB 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.

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