Correlation Between Destinations Small and Gmo Resources

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

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

Diversification Opportunities for Destinations Small and Gmo Resources

0.39

Correlation Coefficient

Destinations Small  Gmo Resources

Weak diversification

The 3 months correlation between Destinations and Gmo is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Destinations Small Mid Cap and Gmo Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Resources and Destinations 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 Destinations Small Mid Cap are associated (or correlated) with Gmo Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Resources has no effect on the direction of Destinations Small i.e., Destinations Small and Gmo Resources go up and down completely randomly.

Pair Corralation between Destinations Small and Gmo Resources

Assuming the 90 days horizon Destinations Small Mid Cap is expected to generate 0.88 times more return on investment than Gmo Resources. However, Destinations Small Mid Cap is 1.13 times less risky than Gmo Resources. It trades about 0.02 of its potential returns per unit of risk. Gmo Resources is currently generating about -0.04 per unit of risk. If you would invest  888.00  in Destinations Small Mid Cap on October 5, 2024 and sell it today you would earn a total of  75.00  from holding Destinations Small Mid Cap or generate 8.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Destinations Small Mid Cap  vs.  Gmo Resources

Destinations Small Mid

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Destinations Small Mid 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 Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Destinations Small and Gmo Resources

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

The idea behind Destinations Small Mid Cap and Gmo Resources 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.