Correlation Between Gmo Small and Rbc Small

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

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

Diversification Opportunities for Gmo Small and Rbc Small

0.82

Correlation Coefficient

Gmo Small  Rbc Small

Very poor diversification

The 3 months correlation between Gmo and Rbc is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Small Cap and Rbc Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rbc Small Cap and Gmo Small 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 Small Cap are associated (or correlated) with Rbc Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rbc Small Cap has no effect on the direction of Gmo Small i.e., Gmo Small and Rbc Small go up and down completely randomly.

Pair Corralation between Gmo Small and Rbc Small

Assuming the 90 days horizon Gmo Small Cap is expected to under-perform the Rbc Small. In addition to that, Gmo Small is 1.16 times more volatile than Rbc Small Cap. It trades about -0.03 of its total potential returns per unit of risk. Rbc Small Cap is currently generating about 0.05 per unit of volatility. If you would invest  1,368  in Rbc Small Cap on September 20, 2024 and sell it today you would earn a total of  44.00  from holding Rbc Small Cap or generate 3.22% return on investment over 90 days.

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

Gmo Small Cap  vs.  Rbc Small Cap

Gmo Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Rbc Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rbc Small Cap are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Rbc Small 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 Small and Rbc Small

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

The idea behind Gmo Small Cap and Rbc Small Cap 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.