Correlation Between GM and Bram Indus

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

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

Diversification Opportunities for GM and Bram Indus

-0.04

Correlation Coefficient

GM  Bram Indus

Good diversification

The 3 months correlation between GM and Bram is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Bram Indus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bram Indus 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 Bram Indus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bram Indus has no effect on the direction of GM i.e., GM and Bram Indus go up and down completely randomly.

Pair Corralation between GM and Bram Indus

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Bram Indus. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 2.1 times less risky than Bram Indus. The stock trades about -0.21 of its potential returns per unit of risk. The Bram Indus is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  15,500  in Bram Indus on September 25, 2024 and sell it today you would earn a total of  2,050  from holding Bram Indus or generate 13.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	80.95%
Values	Daily Returns

General Motors  vs.  Bram Indus

General Motors

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 9 (%) 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.

Bram Indus

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bram Indus are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Bram Indus sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GM and Bram Indus

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

The idea behind General Motors and Bram Indus 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.