Correlation Between GM and Vanguard Materials
Can any of the company-specific risk be diversified away by investing in both GM and Vanguard Materials 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 Materials 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 Materials Index, you can compare the effects of market volatilities on GM and Vanguard Materials 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 Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Vanguard Materials.
Diversification Opportunities for GM and Vanguard Materials
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between GM and Vanguard is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index 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 Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of GM i.e., GM and Vanguard Materials go up and down completely randomly.
Pair Corralation between GM and Vanguard Materials
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.03 times more return on investment than Vanguard Materials. However, GM is 2.03 times more volatile than Vanguard Materials Index. It trades about 0.05 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about 0.05 per unit of risk. If you would invest 3,731 in General Motors on August 27, 2024 and sell it today you would earn a total of 2,122 from holding General Motors or generate 56.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Vanguard Materials Index
Performance |
| Timeline |
| General Motors |
| Vanguard Materials Index |
GM and Vanguard Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Vanguard Materials
The main advantage of trading using opposite GM and Vanguard Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Vanguard Materials 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 Materials will offset losses from the drop in Vanguard Materials' long position.The idea behind General Motors and Vanguard Materials Index 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.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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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