Correlation Between Global E and GMO Internet

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

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

Diversification Opportunities for Global E and GMO Internet

0.19

Correlation Coefficient

Global E  GMO Internet

Average diversification

The 3 months correlation between Global and GMO is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Global E Online and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and Global E 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 Global E Online are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of Global E i.e., Global E and GMO Internet go up and down completely randomly.

Pair Corralation between Global E and GMO Internet

Given the investment horizon of 90 days Global E is expected to generate 1.66 times less return on investment than GMO Internet. In addition to that, Global E is 2.35 times more volatile than GMO Internet. It trades about 0.07 of its total potential returns per unit of risk. GMO Internet is currently generating about 0.29 per unit of volatility. If you would invest  1,635  in GMO Internet on October 27, 2024 and sell it today you would earn a total of  60.00  from holding GMO Internet or generate 3.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

Global E Online  vs.  GMO Internet

Global E Online

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Global E Online are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent fundamental drivers, Global E exhibited solid returns over the last few months and may actually be approaching a breakup point.

GMO Internet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMO Internet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Global E and GMO Internet

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

The idea behind Global E Online and GMO Internet 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..