Correlation Between GM and Vision Lithium
Can any of the company-specific risk be diversified away by investing in both GM and Vision Lithium 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 Vision Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Vision Lithium, you can compare the effects of market volatilities on GM and Vision Lithium 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 Vision Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Vision Lithium.
Diversification Opportunities for GM and Vision Lithium
-0.11 | Correlation Coefficient |
Good diversification
The 3 months correlation between GM and Vision is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vision Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vision Lithium 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 Vision Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vision Lithium has no effect on the direction of GM i.e., GM and Vision Lithium go up and down completely randomly.
Pair Corralation between GM and Vision Lithium
Allowing for the 90-day total investment horizon GM is expected to generate 2.66 times less return on investment than Vision Lithium. But when comparing it to its historical volatility, General Motors is 4.1 times less risky than Vision Lithium. It trades about 0.14 of its potential returns per unit of risk. Vision Lithium is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 1.46 in Vision Lithium on September 3, 2024 and sell it today you would earn a total of 0.13 from holding Vision Lithium or generate 8.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Vision Lithium
Performance |
| Timeline |
| General Motors |
| Vision Lithium |
GM and Vision Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Vision Lithium
The main advantage of trading using opposite GM and Vision Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Vision Lithium 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 Vision Lithium will offset losses from the drop in Vision Lithium's long position.The idea behind General Motors and Vision Lithium 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.| Vision Lithium vs. Argosy Minerals Limited | Vision Lithium vs. Aurelia Metals Limited | Vision Lithium vs. Critical Elements | Vision Lithium vs. Artemis Resources |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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