Correlation Between Fortescue Metals and GMO Internet

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

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

Diversification Opportunities for Fortescue Metals and GMO Internet

-0.2

Correlation Coefficient

Fortescue Metals  GMO Internet

Good diversification

The 3 months correlation between Fortescue and GMO is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and Fortescue Metals 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 Fortescue Metals Group are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and GMO Internet go up and down completely randomly.

Pair Corralation between Fortescue Metals and GMO Internet

Assuming the 90 days horizon Fortescue Metals Group is expected to under-perform the GMO Internet. In addition to that, Fortescue Metals is 1.26 times more volatile than GMO Internet. It trades about -0.1 of its total potential returns per unit of risk. GMO Internet is currently generating about 0.04 per unit of volatility. If you would invest  1,540  in GMO Internet on October 11, 2024 and sell it today you would earn a total of  50.00  from holding GMO Internet or generate 3.25% return on investment over 90 days.

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

Fortescue Metals Group  vs.  GMO Internet

Fortescue Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fortescue Metals Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

GMO Internet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fortescue Metals and GMO Internet

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

The idea behind Fortescue Metals Group and GMO Internet 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.