Correlation Between Gmo Asset and Us Government

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

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

Diversification Opportunities for Gmo Asset and Us Government

0.98

Correlation Coefficient

Gmo Asset  Us Government

Almost no diversification

The 3 months correlation between Gmo and RGVJX is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Asset Allocation and Us Government Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Us Government Securities and Gmo Asset 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 Asset Allocation are associated (or correlated) with Us Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Us Government Securities has no effect on the direction of Gmo Asset i.e., Gmo Asset and Us Government go up and down completely randomly.

Pair Corralation between Gmo Asset and Us Government

Assuming the 90 days horizon Gmo Asset Allocation is expected to generate 2.92 times more return on investment than Us Government. However, Gmo Asset is 2.92 times more volatile than Us Government Securities. It trades about 0.1 of its potential returns per unit of risk. Us Government Securities is currently generating about 0.15 per unit of risk. If you would invest  1,747  in Gmo Asset Allocation on December 27, 2024 and sell it today you would earn a total of  99.00  from holding Gmo Asset Allocation or generate 5.67% return on investment over 90 days.

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

Gmo Asset Allocation  vs.  Us Government Securities

Gmo Asset Allocation

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo Asset Allocation are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Gmo Asset is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Us Government Securities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Us Government Securities are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward-looking indicators, Us Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gmo Asset and Us Government

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

The idea behind Gmo Asset Allocation and Us Government Securities 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.