Correlation Between Gotham Hedged and Gotham Defensive

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

By analyzing existing cross correlation between Gotham Hedged E and Gotham Defensive Long, you can compare the effects of market volatilities on Gotham Hedged and Gotham Defensive 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 Gotham Hedged with a short position of Gotham Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gotham Hedged and Gotham Defensive.

Diversification Opportunities for Gotham Hedged and Gotham Defensive

0.89

Correlation Coefficient

Gotham Hedged  Gotham Defensive

Very poor diversification

The 3 months correlation between Gotham and Gotham is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Gotham Hedged E and Gotham Defensive Long in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gotham Defensive Long and Gotham Hedged 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 Gotham Hedged E are associated (or correlated) with Gotham Defensive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gotham Defensive Long has no effect on the direction of Gotham Hedged i.e., Gotham Hedged and Gotham Defensive go up and down completely randomly.

Pair Corralation between Gotham Hedged and Gotham Defensive

Assuming the 90 days horizon Gotham Hedged E is expected to under-perform the Gotham Defensive. In addition to that, Gotham Hedged is 3.9 times more volatile than Gotham Defensive Long. It trades about -0.21 of its total potential returns per unit of risk. Gotham Defensive Long is currently generating about -0.14 per unit of volatility. If you would invest  1,860  in Gotham Defensive Long on October 12, 2024 and sell it today you would lose (50.00) from holding Gotham Defensive Long or give up 2.69% of portfolio value over 90 days.

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

Gotham Hedged E  vs.  Gotham Defensive Long

Gotham Hedged E

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gotham Hedged E 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 fundamental 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.

Gotham Defensive Long

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gotham Hedged and Gotham Defensive

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

The idea behind Gotham Hedged E and Gotham Defensive Long 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.