Correlation Between GM and VF Corp
Can any of the company-specific risk be diversified away by investing in both GM and VF Corp 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 VF Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and VF Corp, you can compare the effects of market volatilities on GM and VF Corp 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 VF Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and VF Corp.
Diversification Opportunities for GM and VF Corp
Average diversification
The 3 months correlation between GM and 0R30 is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and VF Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VF Corp 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 VF Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VF Corp has no effect on the direction of GM i.e., GM and VF Corp go up and down completely randomly.
Pair Corralation between GM and VF Corp
Allowing for the 90-day total investment horizon GM is expected to generate 3.98 times less return on investment than VF Corp. But when comparing it to its historical volatility, General Motors is 1.66 times less risky than VF Corp. It trades about 0.05 of its potential returns per unit of risk. VF Corp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1,274 in VF Corp on September 24, 2024 and sell it today you would earn a total of 955.00 from holding VF Corp or generate 74.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.22% |
| Values | Daily Returns |
General Motors vs. VF Corp
Performance |
| Timeline |
| General Motors |
| VF Corp |
GM and VF Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and VF Corp
The main advantage of trading using opposite GM and VF Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, VF Corp 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 VF Corp will offset losses from the drop in VF Corp's long position.The idea behind General Motors and VF Corp 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.| VF Corp vs. Uniper SE | VF Corp vs. Mulberry Group PLC | VF Corp vs. London Security Plc | VF Corp vs. Triad Group PLC |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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