Correlation Between Davenport Small and Gmo Us

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

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

Diversification Opportunities for Davenport Small and Gmo Us

0.94

Correlation Coefficient

Davenport Small  Gmo Us

Almost no diversification

The 3 months correlation between Davenport and Gmo is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Davenport Small Cap 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 Davenport Small 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 Davenport Small Cap are associated (or correlated) with Gmo Us. 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 Davenport Small i.e., Davenport Small and Gmo Us go up and down completely randomly.

Pair Corralation between Davenport Small and Gmo Us

Assuming the 90 days horizon Davenport Small Cap is expected to under-perform the Gmo Us. But the mutual fund apears to be less risky and, when comparing its historical volatility, Davenport Small Cap is 1.04 times less risky than Gmo Us. The mutual fund trades about -0.14 of its potential returns per unit of risk. The GMO Small Cap is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  2,079  in GMO Small Cap on December 29, 2024 and sell it today you would lose (106.00) from holding GMO Small Cap or give up 5.1% of portfolio value over 90 days.

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

Davenport Small Cap  vs.  GMO Small Cap

Davenport Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Davenport Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Gmo Small Cap

Risk-Adjusted Performance

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 Us is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Davenport Small and Gmo Us

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

The idea behind Davenport Small Cap 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.