Correlation Between GM and Vaughan Nelson
Can any of the company-specific risk be diversified away by investing in both GM and Vaughan Nelson 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 Vaughan Nelson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Vaughan Nelson Select, you can compare the effects of market volatilities on GM and Vaughan Nelson 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 Vaughan Nelson. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Vaughan Nelson.
Diversification Opportunities for GM and Vaughan Nelson
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between GM and Vaughan is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vaughan Nelson Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vaughan Nelson Select 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 Vaughan Nelson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vaughan Nelson Select has no effect on the direction of GM i.e., GM and Vaughan Nelson go up and down completely randomly.
Pair Corralation between GM and Vaughan Nelson
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.17 times more return on investment than Vaughan Nelson. However, GM is 2.17 times more volatile than Vaughan Nelson Select. It trades about 0.08 of its potential returns per unit of risk. Vaughan Nelson Select is currently generating about 0.07 per unit of risk. If you would invest 4,277 in General Motors on October 25, 2024 and sell it today you would earn a total of 1,143 from holding General Motors or generate 26.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.39% |
| Values | Daily Returns |
General Motors vs. Vaughan Nelson Select
Performance |
| Timeline |
| General Motors |
| Vaughan Nelson Select |
GM and Vaughan Nelson Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Vaughan Nelson
The main advantage of trading using opposite GM and Vaughan Nelson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Vaughan Nelson 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 Vaughan Nelson will offset losses from the drop in Vaughan Nelson's long position.The idea behind General Motors and Vaughan Nelson Select 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.| Vaughan Nelson vs. M Large Cap | Vaughan Nelson vs. Dodge Cox Stock | Vaughan Nelson vs. Tax Managed Large Cap | Vaughan Nelson vs. Fidelity Large Cap |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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