Correlation Between GM and Vale SA
Can any of the company-specific risk be diversified away by investing in both GM and Vale SA 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 Vale SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Vale SA, you can compare the effects of market volatilities on GM and Vale SA 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 Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Vale SA.
Diversification Opportunities for GM and Vale SA
Very good diversification
The 3 months correlation between GM and Vale is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of GM i.e., GM and Vale SA go up and down completely randomly.
Pair Corralation between GM and Vale SA
Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Vale SA. But the stock apears to be less risky and, when comparing its historical volatility, General Motors is 1.11 times less risky than Vale SA. The stock trades about -0.1 of its potential returns per unit of risk. The Vale SA is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 603,981 in Vale SA on January 5, 2025 and sell it today you would earn a total of 19.00 from holding Vale SA or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 90.91% |
| Values | Daily Returns |
General Motors vs. Vale SA
Performance |
| Timeline |
| General Motors |
| Vale SA |
GM and Vale SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Vale SA
The main advantage of trading using opposite GM and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Vale SA 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 Vale SA will offset losses from the drop in Vale SA's long position.The idea behind General Motors and Vale SA 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.| Vale SA vs. United States Steel | Vale SA vs. Verizon Communications | Vale SA vs. Harmony Gold Mining | Vale SA vs. Agrometal SAI |
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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