Correlation Between GM and BCE

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

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

Diversification Opportunities for GM and BCE

-0.9

Correlation Coefficient

GM  BCE

Pay attention - limited upside

The 3 months correlation between GM and BCE is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and BCE Inc Pref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCE Inc Pref 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 BCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCE Inc Pref has no effect on the direction of GM i.e., GM and BCE go up and down completely randomly.

Pair Corralation between GM and BCE

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the BCE. In addition to that, GM is 4.75 times more volatile than BCE Inc Pref. It trades about -0.21 of its total potential returns per unit of risk. BCE Inc Pref is currently generating about 0.12 per unit of volatility. If you would invest  1,593  in BCE Inc Pref on September 25, 2024 and sell it today you would earn a total of  22.00  from holding BCE Inc Pref or generate 1.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

General Motors  vs.  BCE Inc Pref

General Motors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 9 (%) 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.

BCE Inc Pref

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCE Inc Pref has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, BCE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and BCE

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

The idea behind General Motors and BCE Inc Pref 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.