Correlation Between Gmo Alternative and Vanguard Financials

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

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

Diversification Opportunities for Gmo Alternative and Vanguard Financials

-0.75

Correlation Coefficient

Gmo Alternative  Vanguard Financials

Pay attention - limited upside

The 3 months correlation between Gmo and VANGUARD is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Alternative Allocation and Vanguard Financials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Financials Index and Gmo Alternative 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 Gmo Alternative Allocation are associated (or correlated) with Vanguard Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Financials Index has no effect on the direction of Gmo Alternative i.e., Gmo Alternative and Vanguard Financials go up and down completely randomly.

Pair Corralation between Gmo Alternative and Vanguard Financials

Assuming the 90 days horizon Gmo Alternative is expected to generate 12.33 times less return on investment than Vanguard Financials. But when comparing it to its historical volatility, Gmo Alternative Allocation is 3.35 times less risky than Vanguard Financials. It trades about 0.02 of its potential returns per unit of risk. Vanguard Financials Index is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,075  in Vanguard Financials Index on September 2, 2024 and sell it today you would earn a total of  2,242  from holding Vanguard Financials Index or generate 55.02% return on investment over 90 days.

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

Gmo Alternative Allocation  vs.  Vanguard Financials Index

Gmo Alternative Allo

Risk-Adjusted Performance

0 of 100

Very Weak

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

Vanguard Financials Index

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Vanguard Financials showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gmo Alternative and Vanguard Financials

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

The idea behind Gmo Alternative Allocation and Vanguard Financials Index 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.