Correlation Between GM and Vanguard Large-cap

Can any of the company-specific risk be diversified away by investing in both GM and Vanguard Large-cap 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 Large-cap 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 Large Cap Index, you can compare the effects of market volatilities on GM and Vanguard Large-cap 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 Large-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Vanguard Large-cap.

Diversification Opportunities for GM and Vanguard Large-cap

0.14

Correlation Coefficient

GM  Vanguard Large-cap

Average diversification

The 3 months correlation between GM and Vanguard is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vanguard Large Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Large Cap 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 Large-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Large Cap has no effect on the direction of GM i.e., GM and Vanguard Large-cap go up and down completely randomly.

Pair Corralation between GM and Vanguard Large-cap

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Vanguard Large-cap. In addition to that, GM is 2.47 times more volatile than Vanguard Large Cap Index. It trades about -0.03 of its total potential returns per unit of risk. Vanguard Large Cap Index is currently generating about -0.06 per unit of volatility. If you would invest  11,185  in Vanguard Large Cap Index on December 26, 2024 and sell it today you would lose (453.00) from holding Vanguard Large Cap Index or give up 4.05% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

General Motors  vs.  Vanguard Large Cap Index

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.

Vanguard Large Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Large Cap Index has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Vanguard Large-cap is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GM and Vanguard Large-cap

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

The idea behind General Motors and Vanguard Large Cap Index 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.