Correlation Between GM and Vanguard Growth

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

Diversification Opportunities for GM and Vanguard Growth

0.72

Correlation Coefficient

GM  Vanguard Growth

Poor diversification

The 3 months correlation between GM and Vanguard is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Vanguard Growth Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Growth Index 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 Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Growth Index has no effect on the direction of GM i.e., GM and Vanguard Growth go up and down completely randomly.

Pair Corralation between GM and Vanguard Growth

Allowing for the 90-day total investment horizon General Motors is expected to generate 1.97 times more return on investment than Vanguard Growth. However, GM is 1.97 times more volatile than Vanguard Growth Index. It trades about 0.11 of its potential returns per unit of risk. Vanguard Growth Index is currently generating about 0.15 per unit of risk. If you would invest  2,884  in General Motors on September 17, 2024 and sell it today you would earn a total of  2,369  from holding General Motors or generate 82.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.66%
Values	Daily Returns

General Motors  vs.  Vanguard Growth Index

General Motors

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in General Motors are ranked lower than 6 (%) 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 Growth Index

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Growth Index are ranked lower than 17 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Vanguard Growth may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with GM and Vanguard Growth

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

The idea behind General Motors and Vanguard Growth 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.