Correlation Between GM and Barrett Business

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

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

Diversification Opportunities for GM and Barrett Business

0.68

Correlation Coefficient

GM  Barrett Business

Poor diversification

The 3 months correlation between GM and Barrett is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Barrett Business Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barrett Business Services 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 Barrett Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barrett Business Services has no effect on the direction of GM i.e., GM and Barrett Business go up and down completely randomly.

Pair Corralation between GM and Barrett Business

Allowing for the 90-day total investment horizon GM is expected to generate 1.24 times less return on investment than Barrett Business. In addition to that, GM is 1.38 times more volatile than Barrett Business Services. It trades about 0.05 of its total potential returns per unit of risk. Barrett Business Services is currently generating about 0.09 per unit of volatility. If you would invest  2,123  in Barrett Business Services on September 22, 2024 and sell it today you would earn a total of  1,917  from holding Barrett Business Services or generate 90.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	97.83%
Values	Daily Returns

General Motors  vs.  Barrett Business Services

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.

Barrett Business Services

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Barrett Business Services are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Barrett Business reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Barrett Business

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

The idea behind General Motors and Barrett Business Services 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.

Check out your portfolio center.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..