Correlation Between The National and Gmo High

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

By analyzing existing cross correlation between The National Tax Free and Gmo High Yield, you can compare the effects of market volatilities on The National and Gmo High 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 The National with a short position of Gmo High. Check out your portfolio center. Please also check ongoing floating volatility patterns of The National and Gmo High.

Diversification Opportunities for The National and Gmo High

0.84

Correlation Coefficient

The National  Gmo High

Very poor diversification

The 3 months correlation between The and Gmo is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding The National Tax Free and Gmo High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo High Yield and The National 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 The National Tax Free are associated (or correlated) with Gmo High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo High Yield has no effect on the direction of The National i.e., The National and Gmo High go up and down completely randomly.

Pair Corralation between The National and Gmo High

Assuming the 90 days horizon The National is expected to generate 2.07 times less return on investment than Gmo High. But when comparing it to its historical volatility, The National Tax Free is 1.05 times less risky than Gmo High. It trades about 0.1 of its potential returns per unit of risk. Gmo High Yield is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,660  in Gmo High Yield on December 21, 2024 and sell it today you would earn a total of  34.00  from holding Gmo High Yield or generate 2.05% return on investment over 90 days.

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

The National Tax Free  vs.  Gmo High Yield

National Tax

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The National Tax Free are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong essential indicators, The National is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gmo High Yield

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo High Yield are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gmo High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with The National and Gmo High

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

The idea behind The National Tax Free and Gmo High Yield 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.