Correlation Between Bayerische Motoren and GM

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

By analyzing existing cross correlation between Bayerische Motoren Werke and General Motors, you can compare the effects of market volatilities on Bayerische Motoren and GM 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 Bayerische Motoren with a short position of GM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bayerische Motoren and GM.

Diversification Opportunities for Bayerische Motoren and GM

0.67

Correlation Coefficient

Bayerische Motoren  GM

Poor diversification

The 3 months correlation between Bayerische and GM is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Bayerische Motoren Werke and General Motors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Bayerische Motoren 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 Bayerische Motoren Werke are associated (or correlated) with GM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Bayerische Motoren i.e., Bayerische Motoren and GM go up and down completely randomly.

Pair Corralation between Bayerische Motoren and GM

Assuming the 90 days horizon Bayerische Motoren Werke is expected to under-perform the GM. In addition to that, Bayerische Motoren is 1.22 times more volatile than General Motors. It trades about -0.03 of its total potential returns per unit of risk. General Motors is currently generating about 0.04 per unit of volatility. If you would invest  4,540  in General Motors on January 29, 2024 and sell it today you would earn a total of  44.00  from holding General Motors or generate 0.97% return on investment over 90 days.

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

Bayerische Motoren Werke  vs.  General Motors

Bayerische Motoren Werke

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bayerische Motoren Werke are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Bayerische Motoren may actually be approaching a critical reversion point that can send shares even higher in May 2024.

General Motors

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 19 (%) 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.

Pair Trading with Bayerische Motoren and GM

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

The idea behind Bayerische Motoren Werke and General Motors 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.