Correlation Between Gmo Trust and Energy Basic

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

By analyzing existing cross correlation between Gmo Trust and Energy Basic Materials, you can compare the effects of market volatilities on Gmo Trust and Energy Basic 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 Trust with a short position of Energy Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Trust and Energy Basic.

Diversification Opportunities for Gmo Trust and Energy Basic

0.39

Correlation Coefficient

Gmo Trust  Energy Basic

Weak diversification

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

Pair Corralation between Gmo Trust and Energy Basic

Assuming the 90 days horizon Gmo Trust is expected to under-perform the Energy Basic. In addition to that, Gmo Trust is 1.38 times more volatile than Energy Basic Materials. It trades about -0.03 of its total potential returns per unit of risk. Energy Basic Materials is currently generating about 0.13 per unit of volatility. If you would invest  1,144  in Energy Basic Materials on December 28, 2024 and sell it today you would earn a total of  82.00  from holding Energy Basic Materials or generate 7.17% return on investment over 90 days.

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

Gmo Trust   vs.  Energy Basic Materials

Gmo Trust

Risk-Adjusted Performance

Very Weak

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

Energy Basic Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Basic Materials are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental drivers, Energy Basic may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Gmo Trust and Energy Basic

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

The idea behind Gmo Trust and Energy Basic Materials 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..