Correlation Between Dunham High and Gmo Small

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

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

Diversification Opportunities for Dunham High and Gmo Small

0.8

Correlation Coefficient

Dunham High  Gmo Small

Very poor diversification

The 3 months correlation between Dunham and Gmo is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Dunham High Yield and Gmo Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Small Cap and Dunham High 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 Dunham High Yield are associated (or correlated) with Gmo Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Small Cap has no effect on the direction of Dunham High i.e., Dunham High and Gmo Small go up and down completely randomly.

Pair Corralation between Dunham High and Gmo Small

Assuming the 90 days horizon Dunham High is expected to generate 1.41 times less return on investment than Gmo Small. But when comparing it to its historical volatility, Dunham High Yield is 7.77 times less risky than Gmo Small. It trades about 0.12 of its potential returns per unit of risk. Gmo Small Cap is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,017  in Gmo Small Cap on October 10, 2024 and sell it today you would earn a total of  53.00  from holding Gmo Small Cap or generate 2.63% return on investment over 90 days.

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

Dunham High Yield  vs.  Gmo Small Cap

Dunham High Yield

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gmo Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Dunham High and Gmo Small

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

The idea behind Dunham High Yield and Gmo Small Cap 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.