Correlation Between Gmo Small and Gmo Quality

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

Diversification Opportunities for Gmo Small and Gmo Quality

0.89

Correlation Coefficient

Gmo Small  Gmo Quality

Very poor diversification

The 3 months correlation between Gmo and Gmo is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Small Cap and Gmo Quality Cyclicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Quality Cyclicals 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 Gmo Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Quality Cyclicals has no effect on the direction of Gmo Small i.e., Gmo Small and Gmo Quality go up and down completely randomly.

Pair Corralation between Gmo Small and Gmo Quality

Assuming the 90 days horizon Gmo Small Cap is expected to generate 1.08 times more return on investment than Gmo Quality. However, Gmo Small is 1.08 times more volatile than Gmo Quality Cyclicals. It trades about -0.1 of its potential returns per unit of risk. Gmo Quality Cyclicals is currently generating about -0.12 per unit of risk. If you would invest  2,611  in Gmo Small Cap on October 11, 2024 and sell it today you would lose (218.00) from holding Gmo Small Cap or give up 8.35% of portfolio value over 90 days.

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

Gmo Small Cap  vs.  Gmo Quality Cyclicals

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 latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Gmo Quality Cyclicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo Quality Cyclicals has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Gmo Small and Gmo Quality

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

The idea behind Gmo Small Cap and Gmo Quality Cyclicals 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.