Correlation Between GM and Vanguard Short

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Can any of the company-specific risk be diversified away by investing in both GM and Vanguard Short 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 Short 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 Short Term Treasury, you can compare the effects of market volatilities on GM and Vanguard Short 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 Short. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Vanguard Short.

Diversification Opportunities for GM and Vanguard Short

GMVanguardDiversified AwayGMVanguardDiversified Away100%
-0.8
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between GM and Vanguard is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vanguard Short Term Treasury in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Short Term 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 Short. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Short Term has no effect on the direction of GM i.e., GM and Vanguard Short go up and down completely randomly.

Pair Corralation between GM and Vanguard Short

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Vanguard Short. In addition to that, GM is 29.18 times more volatile than Vanguard Short Term Treasury. It trades about -0.3 of its total potential returns per unit of risk. Vanguard Short Term Treasury is currently generating about 0.28 per unit of volatility. If you would invest  5,810  in Vanguard Short Term Treasury on November 25, 2024 and sell it today you would earn a total of  27.00  from holding Vanguard Short Term Treasury or generate 0.46% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

General Motors  vs.  Vanguard Short Term Treasury

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -15-10-505
JavaScript chart by amCharts 3.21.15GM VGSH
       Timeline  
General Motors 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb464850525456586062
Vanguard Short Term 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Short Term Treasury are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Vanguard Short is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb57.657.757.857.95858.158.258.3

GM and Vanguard Short Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-4.07-3.05-2.02-1.0-0.0150.871.772.673.574.47 102030405060
JavaScript chart by amCharts 3.21.15GM VGSH
       Returns  

Pair Trading with GM and Vanguard Short

The main advantage of trading using opposite GM and Vanguard Short positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Vanguard Short 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 Short will offset losses from the drop in Vanguard Short's long position.
The idea behind General Motors and Vanguard Short Term Treasury 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.
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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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