Correlation Between GM Breweries and BF Investment

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

By analyzing existing cross correlation between GM Breweries Limited and BF Investment Limited, you can compare the effects of market volatilities on GM Breweries and BF Investment 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 Breweries with a short position of BF Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM Breweries and BF Investment.

Diversification Opportunities for GM Breweries and BF Investment

-0.63

Correlation Coefficient

GM Breweries  BF Investment

Excellent diversification

The 3 months correlation between GMBREW and BFINVEST is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding GM Breweries Limited and BF Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BF Investment Limited and GM Breweries 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 GM Breweries Limited are associated (or correlated) with BF Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BF Investment Limited has no effect on the direction of GM Breweries i.e., GM Breweries and BF Investment go up and down completely randomly.

Pair Corralation between GM Breweries and BF Investment

Assuming the 90 days trading horizon GM Breweries Limited is expected to under-perform the BF Investment. But the stock apears to be less risky and, when comparing its historical volatility, GM Breweries Limited is 1.06 times less risky than BF Investment. The stock trades about -0.02 of its potential returns per unit of risk. The BF Investment Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  58,325  in BF Investment Limited on September 2, 2024 and sell it today you would earn a total of  14,955  from holding BF Investment Limited or generate 25.64% return on investment over 90 days.

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

GM Breweries Limited  vs.  BF Investment Limited

GM Breweries Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GM Breweries Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GM Breweries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

BF Investment Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BF Investment Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating technical and fundamental indicators, BF Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM Breweries and BF Investment

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

The idea behind GM Breweries Limited and BF Investment Limited 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.