Correlation Between GM and Vulcan Energy
Can any of the company-specific risk be diversified away by investing in both GM and Vulcan Energy 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 Vulcan Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Vulcan Energy Resources, you can compare the effects of market volatilities on GM and Vulcan Energy 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 Vulcan Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Vulcan Energy.
Diversification Opportunities for GM and Vulcan Energy
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between GM and Vulcan is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vulcan Energy Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Energy 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 Vulcan Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Energy Resources has no effect on the direction of GM i.e., GM and Vulcan Energy go up and down completely randomly.
Pair Corralation between GM and Vulcan Energy
Allowing for the 90-day total investment horizon General Motors is expected to generate 0.5 times more return on investment than Vulcan Energy. However, General Motors is 2.02 times less risky than Vulcan Energy. It trades about 0.05 of its potential returns per unit of risk. Vulcan Energy Resources is currently generating about 0.02 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 | Strong |
| Accuracy | 99.4% |
| Values | Daily Returns |
General Motors vs. Vulcan Energy Resources
Performance |
| Timeline |
| General Motors |
| Vulcan Energy Resources |
GM and Vulcan Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Vulcan Energy
The main advantage of trading using opposite GM and Vulcan Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Vulcan Energy 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 Vulcan Energy will offset losses from the drop in Vulcan Energy's long position.The idea behind General Motors and Vulcan Energy 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.| Vulcan Energy vs. Lendlease Group | Vulcan Energy vs. Macquarie Bank Limited | Vulcan Energy vs. Olivers Real Food | Vulcan Energy vs. Saferoads Holdings |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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