Correlation Between GM and Amer Beacon

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

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

Diversification Opportunities for GM and Amer Beacon

0.08

Correlation Coefficient

GM  Amer Beacon

Significant diversification

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

Pair Corralation between GM and Amer Beacon

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Amer Beacon. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.07 times less risky than Amer Beacon. The stock trades about -0.07 of its potential returns per unit of risk. The Amer Beacon Ark is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,619  in Amer Beacon Ark on December 27, 2024 and sell it today you would lose (205.00) from holding Amer Beacon Ark or give up 12.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

General Motors  vs.  Amer Beacon Ark

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Amer Beacon Ark

Risk-Adjusted Performance

Very Weak

Over the last 90 days Amer Beacon Ark has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with GM and Amer Beacon

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

The idea behind General Motors and Amer Beacon Ark 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .