Correlation Between GM and Vanguard Mid
Can any of the company-specific risk be diversified away by investing in both GM and Vanguard Mid 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 Mid 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 Mid Cap Value, you can compare the effects of market volatilities on GM and Vanguard Mid 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 Mid. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Vanguard Mid.
Diversification Opportunities for GM and Vanguard Mid
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between GM and Vanguard is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vanguard Mid Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Mid Cap 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 Mid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Mid Cap has no effect on the direction of GM i.e., GM and Vanguard Mid go up and down completely randomly.
Pair Corralation between GM and Vanguard Mid
Allowing for the 90-day total investment horizon General Motors is expected to generate 2.5 times more return on investment than Vanguard Mid. However, GM is 2.5 times more volatile than Vanguard Mid Cap Value. It trades about 0.06 of its potential returns per unit of risk. Vanguard Mid Cap Value is currently generating about 0.07 per unit of risk. If you would invest 3,525 in General Motors on August 31, 2024 and sell it today you would earn a total of 2,034 from holding General Motors or generate 57.7% 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 Mid Cap Value
Performance |
| Timeline |
| General Motors |
| Vanguard Mid Cap |
GM and Vanguard Mid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Vanguard Mid
The main advantage of trading using opposite GM and Vanguard Mid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Vanguard Mid 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 Mid will offset losses from the drop in Vanguard Mid's long position.The idea behind General Motors and Vanguard Mid Cap Value 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 Mid vs. Vanguard Small Cap Value | Vanguard Mid vs. Vanguard Mid Cap Growth | Vanguard Mid vs. Vanguard Value Index | Vanguard Mid vs. Vanguard Small Cap Growth |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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