Correlation Between Gmo Global and Financials Ultrasector

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

By analyzing existing cross correlation between Gmo Global Equity and Financials Ultrasector Profund, you can compare the effects of market volatilities on Gmo Global and Financials Ultrasector 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 Global with a short position of Financials Ultrasector. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Global and Financials Ultrasector.

Diversification Opportunities for Gmo Global and Financials Ultrasector

-0.14

Correlation Coefficient

Gmo Global  Financials Ultrasector

Good diversification

The 3 months correlation between Gmo and Financials is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Global Equity and Financials Ultrasector Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financials Ultrasector and Gmo Global 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 Global Equity are associated (or correlated) with Financials Ultrasector. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financials Ultrasector has no effect on the direction of Gmo Global i.e., Gmo Global and Financials Ultrasector go up and down completely randomly.

Pair Corralation between Gmo Global and Financials Ultrasector

Assuming the 90 days horizon Gmo Global is expected to generate 11.15 times less return on investment than Financials Ultrasector. But when comparing it to its historical volatility, Gmo Global Equity is 2.69 times less risky than Financials Ultrasector. It trades about 0.04 of its potential returns per unit of risk. Financials Ultrasector Profund is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  3,768  in Financials Ultrasector Profund on September 13, 2024 and sell it today you would earn a total of  637.00  from holding Financials Ultrasector Profund or generate 16.91% return on investment over 90 days.

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

Gmo Global Equity  vs.  Financials Ultrasector Profund

Gmo Global Equity

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo Global Equity are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Gmo Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Financials Ultrasector

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Financials Ultrasector Profund are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Financials Ultrasector showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gmo Global and Financials Ultrasector

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

The idea behind Gmo Global Equity and Financials Ultrasector Profund 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.