Correlation Between California High-yield and Gmo International

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

By analyzing existing cross correlation between California High Yield Municipal and Gmo International Equity, you can compare the effects of market volatilities on California High-yield and Gmo International 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 California High-yield with a short position of Gmo International. Check out your portfolio center. Please also check ongoing floating volatility patterns of California High-yield and Gmo International.

Diversification Opportunities for California High-yield and Gmo International

-0.13

Correlation Coefficient

California High-yield  Gmo International

Good diversification

The 3 months correlation between California and Gmo is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding California High Yield Municipa and Gmo International Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo International Equity and California High-yield 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 California High Yield Municipal are associated (or correlated) with Gmo International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo International Equity has no effect on the direction of California High-yield i.e., California High-yield and Gmo International go up and down completely randomly.

Pair Corralation between California High-yield and Gmo International

Assuming the 90 days horizon California High-yield is expected to generate 8.0 times less return on investment than Gmo International. But when comparing it to its historical volatility, California High Yield Municipal is 3.07 times less risky than Gmo International. It trades about 0.12 of its potential returns per unit of risk. Gmo International Equity is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  2,575  in Gmo International Equity on December 4, 2024 and sell it today you would earn a total of  123.00  from holding Gmo International Equity or generate 4.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

California High Yield Municipa  vs.  Gmo International Equity

California High Yield

Risk-Adjusted Performance

Very Weak

Over the last 90 days California High Yield Municipal has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, California High-yield is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gmo International Equity

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo International Equity are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Gmo International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with California High-yield and Gmo International

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

The idea behind California High Yield Municipal and Gmo International Equity 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.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.