Correlation Between GM and Vanguard Funds

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

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

Diversification Opportunities for GM and Vanguard Funds

0.6

Correlation Coefficient

GM  Vanguard Funds

Poor diversification

The 3 months correlation between GM and Vanguard is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vanguard Funds PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Funds PLC 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 Vanguard Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Funds PLC has no effect on the direction of GM i.e., GM and Vanguard Funds go up and down completely randomly.

Pair Corralation between GM and Vanguard Funds

Allowing for the 90-day total investment horizon General Motors is expected to generate 4.24 times more return on investment than Vanguard Funds. However, GM is 4.24 times more volatile than Vanguard Funds PLC. It trades about 0.05 of its potential returns per unit of risk. Vanguard Funds PLC is currently generating about 0.1 per unit of risk. If you would invest  3,312  in General Motors on September 23, 2024 and sell it today you would earn a total of  1,869  from holding General Motors or generate 56.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.22%
Values	Daily Returns

General Motors  vs.  Vanguard Funds PLC

General Motors

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, GM may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vanguard Funds PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Funds PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Vanguard Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GM and Vanguard Funds

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

The idea behind General Motors and Vanguard Funds PLC 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.