Correlation Between GM and Virtus LifeSci

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

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

Diversification Opportunities for GM and Virtus LifeSci

-0.07

Correlation Coefficient

GM  Virtus LifeSci

Good diversification

The 3 months correlation between GM and Virtus is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Virtus LifeSci Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus LifeSci Biotech 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 Virtus LifeSci. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus LifeSci Biotech has no effect on the direction of GM i.e., GM and Virtus LifeSci go up and down completely randomly.

Pair Corralation between GM and Virtus LifeSci

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Virtus LifeSci. In addition to that, GM is 1.94 times more volatile than Virtus LifeSci Biotech. It trades about -0.01 of its total potential returns per unit of risk. Virtus LifeSci Biotech is currently generating about 0.0 per unit of volatility. If you would invest  6,124  in Virtus LifeSci Biotech on December 26, 2024 and sell it today you would lose (28.00) from holding Virtus LifeSci Biotech or give up 0.46% of portfolio value over 90 days.

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

General Motors  vs.  Virtus LifeSci Biotech

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.

Virtus LifeSci Biotech

Risk-Adjusted Performance

Very Weak

Over the last 90 days Virtus LifeSci Biotech has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Virtus LifeSci is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with GM and Virtus LifeSci

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

The idea behind General Motors and Virtus LifeSci Biotech 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.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.