Correlation Between GM and Brookside Energy

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

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

Diversification Opportunities for GM and Brookside Energy

-0.16

Correlation Coefficient

GM  Brookside Energy

Good diversification

The 3 months correlation between GM and Brookside is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Brookside Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookside Energy 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 Brookside Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookside Energy has no effect on the direction of GM i.e., GM and Brookside Energy go up and down completely randomly.

Pair Corralation between GM and Brookside Energy

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Brookside Energy. In addition to that, GM is 1.43 times more volatile than Brookside Energy. It trades about -0.31 of its total potential returns per unit of risk. Brookside Energy is currently generating about -0.31 per unit of volatility. If you would invest  49.00  in Brookside Energy on September 25, 2024 and sell it today you would lose (5.00) from holding Brookside Energy or give up 10.2% of portfolio value over 90 days.

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

General Motors  vs.  Brookside Energy

General Motors

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 7 (%) 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.

Brookside Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brookside Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward-looking signals remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with GM and Brookside Energy

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

The idea behind General Motors and Brookside Energy 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.