Correlation Between GM and Beijing Compass

Can any of the company-specific risk be diversified away by investing in both GM and Beijing Compass 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 Beijing Compass into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between General Motors and Beijing Compass Technology, you can compare the effects of market volatilities on GM and Beijing Compass 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 Beijing Compass. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Beijing Compass.

Diversification Opportunities for GM and Beijing Compass

0.66

Correlation Coefficient

GM  Beijing Compass

Poor diversification

The 3 months correlation between GM and Beijing is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Beijing Compass Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beijing Compass Tech 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 Beijing Compass. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beijing Compass Tech has no effect on the direction of GM i.e., GM and Beijing Compass go up and down completely randomly.

Pair Corralation between GM and Beijing Compass

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Beijing Compass. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.69 times less risky than Beijing Compass. The stock trades about -0.3 of its potential returns per unit of risk. The Beijing Compass Technology is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  8,918  in Beijing Compass Technology on September 24, 2024 and sell it today you would earn a total of  417.00  from holding Beijing Compass Technology or generate 4.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  Beijing Compass Technology

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Beijing Compass Tech

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Beijing Compass Technology are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Beijing Compass sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Beijing Compass

The main advantage of trading using opposite GM and Beijing Compass positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Beijing Compass 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 Beijing Compass will offset losses from the drop in Beijing Compass' long position.

The idea behind General Motors and Beijing Compass Technology 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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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..