Correlation Between Gotham Index and Gotham Large

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

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

Diversification Opportunities for Gotham Index and Gotham Large

0.75

Correlation Coefficient

Gotham Index  Gotham Large

Poor diversification

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

Pair Corralation between Gotham Index and Gotham Large

Assuming the 90 days horizon Gotham Index Plus is expected to generate 0.57 times more return on investment than Gotham Large. However, Gotham Index Plus is 1.75 times less risky than Gotham Large. It trades about -0.16 of its potential returns per unit of risk. Gotham Large Value is currently generating about -0.24 per unit of risk. If you would invest  2,928  in Gotham Index Plus on October 12, 2024 and sell it today you would lose (126.00) from holding Gotham Index Plus or give up 4.3% of portfolio value over 90 days.

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

Gotham Index Plus  vs.  Gotham Large Value

Gotham Index Plus

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gotham Large Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gotham Large Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's essential indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Gotham Index and Gotham Large

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

The idea behind Gotham Index Plus and Gotham Large Value 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..