Correlation Between GM and BCAP Mid

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

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

Diversification Opportunities for GM and BCAP Mid

-0.61

Correlation Coefficient

GM  BCAP Mid

Excellent diversification

The 3 months correlation between GM and BCAP is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and BCAP Mid Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BCAP Mid Small 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 BCAP Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BCAP Mid Small has no effect on the direction of GM i.e., GM and BCAP Mid go up and down completely randomly.

Pair Corralation between GM and BCAP Mid

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the BCAP Mid. In addition to that, GM is 3.25 times more volatile than BCAP Mid Small. It trades about -0.23 of its total potential returns per unit of risk. BCAP Mid Small is currently generating about -0.39 per unit of volatility. If you would invest  908.00  in BCAP Mid Small on September 23, 2024 and sell it today you would lose (51.00) from holding BCAP Mid Small or give up 5.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

General Motors  vs.  BCAP Mid Small

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 unfluctuating primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BCAP Mid Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BCAP Mid Small has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Etf's fundamental drivers remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with GM and BCAP Mid

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

The idea behind General Motors and BCAP Mid Small 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.