Correlation Between GM and VR Resources
Can any of the company-specific risk be diversified away by investing in both GM and VR Resources 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 VR Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and VR Resources, you can compare the effects of market volatilities on GM and VR Resources 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 VR Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and VR Resources.
Diversification Opportunities for GM and VR Resources
-0.73 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between GM and VRRCF is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and VR Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VR Resources 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 VR Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VR Resources has no effect on the direction of GM i.e., GM and VR Resources go up and down completely randomly.
Pair Corralation between GM and VR Resources
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.65 times more return on investment than VR Resources. However, General Motors is 1.55 times less risky than VR Resources. It trades about 0.17 of its potential returns per unit of risk. VR Resources is currently generating about -0.19 per unit of risk. If you would invest 5,076 in General Motors on September 1, 2024 and sell it today you would earn a total of 483.00 from holding General Motors or generate 9.52% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. VR Resources
Performance |
| Timeline |
| General Motors |
| VR Resources |
GM and VR Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and VR Resources
The main advantage of trading using opposite GM and VR Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, VR Resources 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 VR Resources will offset losses from the drop in VR Resources' long position.The idea behind General Motors and VR Resources 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.| VR Resources vs. ATT Inc | VR Resources vs. Merck Company | VR Resources vs. Walt Disney | VR Resources vs. Caterpillar |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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