Correlation Between GM and Vanguard
Can any of the company-specific risk be diversified away by investing in both GM and Vanguard 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 Vanguard into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Vanguard SP Mid Cap, you can compare the effects of market volatilities on GM and Vanguard 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 Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Vanguard.
Diversification Opportunities for GM and Vanguard
Poor diversification
The 3 months correlation between GM and Vanguard is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vanguard SP Mid Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Mid 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Mid has no effect on the direction of GM i.e., GM and Vanguard go up and down completely randomly.
Pair Corralation between GM and Vanguard
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.28 times more return on investment than Vanguard. However, GM is 2.28 times more volatile than Vanguard SP Mid Cap. It trades about 0.16 of its potential returns per unit of risk. Vanguard SP Mid Cap is currently generating about 0.16 per unit of risk. If you would invest 4,893 in General Motors on August 28, 2024 and sell it today you would earn a total of 1,127 from holding General Motors or generate 23.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Vanguard SP Mid Cap
Performance |
| Timeline |
| General Motors |
| Vanguard SP Mid |
GM and Vanguard Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Vanguard
The main advantage of trading using opposite GM and Vanguard positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Vanguard 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 Vanguard will offset losses from the drop in Vanguard's long position.The idea behind General Motors and Vanguard SP Mid Cap 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.| Vanguard vs. Vanguard SP Mid Cap | Vanguard vs. Vanguard SP Small Cap | Vanguard vs. Vanguard SP Mid Cap | Vanguard vs. Vanguard Russell 2000 |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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