Correlation Between GM and Vertex

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

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

Diversification Opportunities for GM and Vertex

0.38

Correlation Coefficient

GM  Vertex

Weak diversification

The 3 months correlation between GM and Vertex is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vertex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertex 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 Vertex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertex has no effect on the direction of GM i.e., GM and Vertex go up and down completely randomly.

Pair Corralation between GM and Vertex

Allowing for the 90-day total investment horizon General Motors is expected to generate 0.68 times more return on investment than Vertex. However, General Motors is 1.47 times less risky than Vertex. It trades about -0.11 of its potential returns per unit of risk. Vertex is currently generating about -0.21 per unit of risk. If you would invest  5,547  in General Motors on November 29, 2024 and sell it today you would lose (783.00) from holding General Motors or give up 14.12% of portfolio value over 90 days.

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

General Motors  vs.  Vertex

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 weak 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.

Vertex

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vertex has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with GM and Vertex

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

The idea behind General Motors and Vertex 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.