Correlation Between GM and BJs Restaurants

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

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

Diversification Opportunities for GM and BJs Restaurants

-0.06

Correlation Coefficient

GM  BJs Restaurants

Good diversification

The 3 months correlation between GM and BJs is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants 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 BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of GM i.e., GM and BJs Restaurants go up and down completely randomly.

Pair Corralation between GM and BJs Restaurants

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.18 times more return on investment than BJs Restaurants. However, GM is 1.18 times more volatile than BJs Restaurants. It trades about -0.01 of its potential returns per unit of risk. BJs Restaurants is currently generating about -0.05 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 Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

General Motors  vs.  BJs Restaurants

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.

BJs Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days BJs Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BJs Restaurants is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GM and BJs Restaurants

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

The idea behind General Motors and BJs Restaurants 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.