Correlation Between Gmo Small and Ultrashort Mid-cap

Can any of the company-specific risk be diversified away by investing in both Gmo Small and Ultrashort Mid-cap 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 Ultrashort Mid-cap 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 Ultrashort Mid Cap Profund, you can compare the effects of market volatilities on Gmo Small and Ultrashort Mid-cap 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 Ultrashort Mid-cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Small and Ultrashort Mid-cap.

Diversification Opportunities for Gmo Small and Ultrashort Mid-cap

-0.86

Correlation Coefficient

Gmo Small  Ultrashort Mid-cap

Pay attention - limited upside

The 3 months correlation between Gmo and Ultrashort is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Small Cap and Ultrashort Mid Cap Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Mid 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 Ultrashort Mid-cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Mid Cap has no effect on the direction of Gmo Small i.e., Gmo Small and Ultrashort Mid-cap go up and down completely randomly.

Pair Corralation between Gmo Small and Ultrashort Mid-cap

Assuming the 90 days horizon Gmo Small Cap is expected to under-perform the Ultrashort Mid-cap. But the mutual fund apears to be less risky and, when comparing its historical volatility, Gmo Small Cap is 1.6 times less risky than Ultrashort Mid-cap. The mutual fund trades about -0.24 of its potential returns per unit of risk. The Ultrashort Mid Cap Profund is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,507  in Ultrashort Mid Cap Profund on November 28, 2024 and sell it today you would earn a total of  475.00  from holding Ultrashort Mid Cap Profund or generate 18.95% return on investment over 90 days.

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

Gmo Small Cap  vs.  Ultrashort Mid Cap Profund

Gmo Small Cap

Risk-Adjusted Performance

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 weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Ultrashort Mid Cap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrashort Mid Cap Profund are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Ultrashort Mid-cap showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gmo Small and Ultrashort Mid-cap

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

The idea behind Gmo Small Cap and Ultrashort Mid Cap 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.