Correlation Between GM and VanEck Biotech

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

By analyzing existing cross correlation between General Motors and VanEck Biotech ETF, you can compare the effects of market volatilities on GM and VanEck Biotech 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 VanEck Biotech. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and VanEck Biotech.

Diversification Opportunities for GM and VanEck Biotech

-0.49

Correlation Coefficient

GM  VanEck Biotech

Very good diversification

The 3 months correlation between GM and VanEck is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and VanEck Biotech ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Biotech ETF 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 VanEck Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Biotech ETF has no effect on the direction of GM i.e., GM and VanEck Biotech go up and down completely randomly.

Pair Corralation between GM and VanEck Biotech

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the VanEck Biotech. In addition to that, GM is 2.36 times more volatile than VanEck Biotech ETF. It trades about -0.01 of its total potential returns per unit of risk. VanEck Biotech ETF is currently generating about 0.02 per unit of volatility. If you would invest  15,919  in VanEck Biotech ETF on December 26, 2024 and sell it today you would earn a total of  145.00  from holding VanEck Biotech ETF or generate 0.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

General Motors  vs.  VanEck Biotech ETF

General Motors

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

VanEck Biotech ETF

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Biotech ETF are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, VanEck Biotech is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with GM and VanEck Biotech

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

The idea behind General Motors and VanEck Biotech ETF 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.