Correlation Between GM and Vecima Networks

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

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

Diversification Opportunities for GM and Vecima Networks

0.81

Correlation Coefficient

GM  Vecima Networks

Very poor diversification

The 3 months correlation between GM and Vecima is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vecima Networks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vecima Networks 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 Vecima Networks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vecima Networks has no effect on the direction of GM i.e., GM and Vecima Networks go up and down completely randomly.

Pair Corralation between GM and Vecima Networks

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.95 times more return on investment than Vecima Networks. However, General Motors is 1.05 times less risky than Vecima Networks. It trades about 0.03 of its potential returns per unit of risk. Vecima Networks is currently generating about -0.04 per unit of risk. If you would invest  3,792  in General Motors on November 20, 2024 and sell it today you would earn a total of  1,045  from holding General Motors or generate 27.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

General Motors  vs.  Vecima Networks

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 latest weak performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Vecima Networks

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vecima Networks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with GM and Vecima Networks

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

The idea behind General Motors and Vecima Networks 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.