Correlation Between Gmo Emerging and Gmo Resources

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

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

Diversification Opportunities for Gmo Emerging and Gmo Resources

0.37

Correlation Coefficient

Gmo Emerging  Gmo Resources

Weak diversification

The 3 months correlation between GMO and Gmo is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Emerging Markets and Gmo Resources Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Resources and Gmo Emerging 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 Emerging Markets are associated (or correlated) with Gmo Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Resources has no effect on the direction of Gmo Emerging i.e., Gmo Emerging and Gmo Resources go up and down completely randomly.

Pair Corralation between Gmo Emerging and Gmo Resources

Assuming the 90 days horizon Gmo Emerging Markets is expected to under-perform the Gmo Resources. In addition to that, Gmo Emerging is 1.35 times more volatile than Gmo Resources Fund. It trades about -0.14 of its total potential returns per unit of risk. Gmo Resources Fund is currently generating about -0.01 per unit of volatility. If you would invest  1,782  in Gmo Resources Fund on December 19, 2024 and sell it today you would lose (16.00) from holding Gmo Resources Fund or give up 0.9% of portfolio value over 90 days.

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

Gmo Emerging Markets  vs.  Gmo Resources Fund

Gmo Emerging Markets

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gmo Emerging Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Gmo Resources

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Gmo Emerging and Gmo Resources

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

The idea behind Gmo Emerging Markets and Gmo Resources Fund 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.