Correlation Between GM and Bel Fuse

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

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

Diversification Opportunities for GM and Bel Fuse

0.07

Correlation Coefficient

GM  Bel Fuse

Significant diversification

The 3 months correlation between GM and Bel is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Bel Fuse B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bel Fuse B 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 Bel Fuse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bel Fuse B has no effect on the direction of GM i.e., GM and Bel Fuse go up and down completely randomly.

Pair Corralation between GM and Bel Fuse

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.27 times more return on investment than Bel Fuse. However, GM is 1.27 times more volatile than Bel Fuse B. It trades about -0.01 of its potential returns per unit of risk. Bel Fuse B is currently generating about -0.06 per unit of risk. If you would invest  5,404  in General Motors on December 26, 2024 and sell it today you would lose (145.00) from holding General Motors or give up 2.68% of portfolio value over 90 days.

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

General Motors  vs.  Bel Fuse B

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 very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Bel Fuse B

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bel Fuse B has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with GM and Bel Fuse

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

The idea behind General Motors and Bel Fuse B 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.