Correlation Between Vulcan Materials and General Motors

Can any of the company-specific risk be diversified away by investing in both Vulcan Materials and General Motors 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 Vulcan Materials and General Motors into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vulcan Materials Co and General Motors Co, you can compare the effects of market volatilities on Vulcan Materials and General Motors 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 Vulcan Materials with a short position of General Motors. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vulcan Materials and General Motors.

Diversification Opportunities for Vulcan Materials and General Motors

0.75

Correlation Coefficient

Vulcan Materials  General Motors

Poor diversification

The 3 months correlation between Vulcan and General is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials Co and General Motors Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Motors and Vulcan Materials 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 Vulcan Materials Co are associated (or correlated) with General Motors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Motors has no effect on the direction of Vulcan Materials i.e., Vulcan Materials and General Motors go up and down completely randomly.

Pair Corralation between Vulcan Materials and General Motors

Assuming the 90 days trading horizon Vulcan Materials Co is expected to under-perform the General Motors. But the stock apears to be less risky and, when comparing its historical volatility, Vulcan Materials Co is 1.23 times less risky than General Motors. The stock trades about -0.3 of its potential returns per unit of risk. The General Motors Co is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  5,345  in General Motors Co on October 10, 2024 and sell it today you would lose (60.00) from holding General Motors Co or give up 1.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Vulcan Materials Co  vs.  General Motors Co

Vulcan Materials

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vulcan Materials is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, General Motors may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Vulcan Materials and General Motors

The main advantage of trading using opposite Vulcan Materials and General Motors positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Materials position performs unexpectedly, General Motors 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 General Motors will offset losses from the drop in General Motors' long position.

The idea behind Vulcan Materials Co and General Motors Co 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.