Correlation Between GM and Baron Discovery

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

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

Diversification Opportunities for GM and Baron Discovery

0.73

Correlation Coefficient

GM  Baron Discovery

Poor diversification

The 3 months correlation between GM and Baron is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Baron Discovery Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Discovery 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 Baron Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Discovery has no effect on the direction of GM i.e., GM and Baron Discovery go up and down completely randomly.

Pair Corralation between GM and Baron Discovery

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.9 times more return on investment than Baron Discovery. However, GM is 1.9 times more volatile than Baron Discovery Fund. It trades about 0.11 of its potential returns per unit of risk. Baron Discovery Fund is currently generating about 0.11 per unit of risk. If you would invest  4,638  in General Motors on September 27, 2024 and sell it today you would earn a total of  780.00  from holding General Motors or generate 16.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

General Motors  vs.  Baron Discovery Fund

General Motors

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 8 (%) 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.

Baron Discovery

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Discovery Fund are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Baron Discovery may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Baron Discovery

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

The idea behind General Motors and Baron Discovery Fund 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.