Correlation Between GM and BB Biotech

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

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

Diversification Opportunities for GM and BB Biotech

0.56

Correlation Coefficient

GM  BB Biotech

Very weak diversification

The 3 months correlation between GM and BBZA is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and BB Biotech AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BB Biotech AG 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 BB Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BB Biotech AG has no effect on the direction of GM i.e., GM and BB Biotech go up and down completely randomly.

Pair Corralation between GM and BB Biotech

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.15 times more return on investment than BB Biotech. However, GM is 1.15 times more volatile than BB Biotech AG. It trades about -0.12 of its potential returns per unit of risk. BB Biotech AG is currently generating about -0.22 per unit of risk. If you would invest  5,538  in General Motors on September 28, 2024 and sell it today you would lose (187.00) from holding General Motors or give up 3.38% of portfolio value over 90 days.

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

General Motors  vs.  BB Biotech AG

General Motors

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM displayed solid returns over the last few months and may actually be approaching a breakup point.

BB Biotech AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BB Biotech AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, BB Biotech is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with GM and BB Biotech

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

The idea behind General Motors and BB Biotech AG 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.