Correlation Between Life Electric and Bayerische Motoren

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

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

Diversification Opportunities for Life Electric and Bayerische Motoren

0.1

Correlation Coefficient

Life Electric  Bayerische Motoren

Average diversification

The 3 months correlation between Life and Bayerische is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Life Electric Vehicles and Bayerische Motoren Werke in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayerische Motoren Werke and Life Electric 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 Life Electric Vehicles are associated (or correlated) with Bayerische Motoren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayerische Motoren Werke has no effect on the direction of Life Electric i.e., Life Electric and Bayerische Motoren go up and down completely randomly.

Pair Corralation between Life Electric and Bayerische Motoren

Given the investment horizon of 90 days Life Electric Vehicles is expected to generate 6.23 times more return on investment than Bayerische Motoren. However, Life Electric is 6.23 times more volatile than Bayerische Motoren Werke. It trades about 0.07 of its potential returns per unit of risk. Bayerische Motoren Werke is currently generating about -0.12 per unit of risk. If you would invest  25.00  in Life Electric Vehicles on September 3, 2024 and sell it today you would earn a total of  0.00  from holding Life Electric Vehicles or generate 0.0% return on investment over 90 days.

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

Life Electric Vehicles  vs.  Bayerische Motoren Werke

Life Electric Vehicles

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Life Electric Vehicles are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, Life Electric showed solid returns over the last few months and may actually be approaching a breakup point.

Bayerische Motoren Werke

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayerische Motoren Werke has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Life Electric and Bayerische Motoren

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

The idea behind Life Electric Vehicles and Bayerische Motoren Werke 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.