Correlation Between CLO and GRS

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

By analyzing existing cross correlation between CLO and GRS, you can compare the effects of market volatilities on CLO and GRS 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 CLO with a short position of GRS. Check out your portfolio center. Please also check ongoing floating volatility patterns of CLO and GRS.

Diversification Opportunities for CLO and GRS

0.24

Correlation Coefficient

CLO  GRS

Modest diversification

The 3 months correlation between CLO and GRS is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding CLO and GRS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GRS and CLO 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 CLO are associated (or correlated) with GRS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GRS has no effect on the direction of CLO i.e., CLO and GRS go up and down completely randomly.

Pair Corralation between CLO and GRS

Assuming the 90 days trading horizon CLO is expected to generate 35.24 times more return on investment than GRS. However, CLO is 35.24 times more volatile than GRS. It trades about 0.32 of its potential returns per unit of risk. GRS is currently generating about -0.04 per unit of risk. If you would invest  0.07  in CLO on December 28, 2024 and sell it today you would lose (0.06) from holding CLO or give up 86.49% of portfolio value over 90 days.

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

CLO  vs.  GRS

CLO

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CLO are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CLO exhibited solid returns over the last few months and may actually be approaching a breakup point.

GRS

Risk-Adjusted Performance

Very Weak

Over the last 90 days GRS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for GRS shareholders.

Pair Trading with CLO and GRS

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

The idea behind CLO and GRS 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.