Correlation Between Gotham Defensive and Gotham Hedged

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

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

Diversification Opportunities for Gotham Defensive and Gotham Hedged

0.39

Correlation Coefficient

Gotham Defensive  Gotham Hedged

Weak diversification

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

Pair Corralation between Gotham Defensive and Gotham Hedged

Assuming the 90 days horizon Gotham Defensive Long is expected to generate 1.08 times more return on investment than Gotham Hedged. However, Gotham Defensive is 1.08 times more volatile than Gotham Hedged E. It trades about 0.09 of its potential returns per unit of risk. Gotham Hedged E is currently generating about 0.05 per unit of risk. If you would invest  1,782  in Gotham Defensive Long on December 19, 2024 and sell it today you would earn a total of  69.00  from holding Gotham Defensive Long or generate 3.87% return on investment over 90 days.

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

Gotham Defensive Long  vs.  Gotham Hedged E

Gotham Defensive Long

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gotham Defensive Long are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. 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.

Gotham Hedged E

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gotham Hedged E are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Gotham Hedged 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 Defensive and Gotham Hedged

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

The idea behind Gotham Defensive Long and Gotham Hedged E 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.