Correlation Between General American and Vanguard 500
Can any of the company-specific risk be diversified away by investing in both General American and Vanguard 500 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 General American and Vanguard 500 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General American Investors and Vanguard 500 Index, you can compare the effects of market volatilities on General American and Vanguard 500 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 General American with a short position of Vanguard 500. Check out your portfolio center. Please also check ongoing floating volatility patterns of General American and Vanguard 500.
Diversification Opportunities for General American and Vanguard 500
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between General and Vanguard is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding General American Investors and Vanguard 500 Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 500 Index and General American 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 American Investors are associated (or correlated) with Vanguard 500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard 500 Index has no effect on the direction of General American i.e., General American and Vanguard 500 go up and down completely randomly.
Pair Corralation between General American and Vanguard 500
Assuming the 90 days horizon General American Investors is expected to generate 0.89 times more return on investment than Vanguard 500. However, General American Investors is 1.12 times less risky than Vanguard 500. It trades about -0.09 of its potential returns per unit of risk. Vanguard 500 Index is currently generating about -0.17 per unit of risk. If you would invest 5,632 in General American Investors on January 24, 2024 and sell it today you would lose (78.00) from holding General American Investors or give up 1.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
General American Investors vs. Vanguard 500 Index
Performance |
| Timeline |
| General American Inv |
| Vanguard 500 Index |
General American and Vanguard 500 Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with General American and Vanguard 500
The main advantage of trading using opposite General American and Vanguard 500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General American position performs unexpectedly, Vanguard 500 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 500 will offset losses from the drop in Vanguard 500's long position.| General American vs. Vanguard Total Stock | General American vs. Vanguard 500 Index | General American vs. Vanguard Total Stock | General American vs. Vanguard Total Stock |
| Vanguard 500 vs. Vanguard Mid Cap Index | Vanguard 500 vs. Vanguard Small Cap Index | Vanguard 500 vs. Vanguard Total Bond | Vanguard 500 vs. Vanguard Total International |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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