Correlation Between Gmo Equity and Arbitrage Fund

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

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

Diversification Opportunities for Gmo Equity and Arbitrage Fund

0.61

Correlation Coefficient

Gmo Equity  Arbitrage Fund

Poor diversification

The 3 months correlation between Gmo and Arbitrage is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Equity Allocation and The Arbitrage Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arbitrage Fund and Gmo Equity 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 Equity Allocation are associated (or correlated) with Arbitrage Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arbitrage Fund has no effect on the direction of Gmo Equity i.e., Gmo Equity and Arbitrage Fund go up and down completely randomly.

Pair Corralation between Gmo Equity and Arbitrage Fund

Assuming the 90 days horizon Gmo Equity is expected to generate 1.5 times less return on investment than Arbitrage Fund. In addition to that, Gmo Equity is 6.4 times more volatile than The Arbitrage Fund. It trades about 0.0 of its total potential returns per unit of risk. The Arbitrage Fund is currently generating about 0.04 per unit of volatility. If you would invest  1,345  in The Arbitrage Fund on September 12, 2024 and sell it today you would earn a total of  7.00  from holding The Arbitrage Fund or generate 0.52% return on investment over 90 days.

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

Gmo Equity Allocation  vs.  The Arbitrage Fund

Gmo Equity Allocation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Arbitrage Fund

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Arbitrage Fund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Arbitrage Fund 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 Equity and Arbitrage Fund

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

The idea behind Gmo Equity Allocation and The Arbitrage 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.

Check out your portfolio center.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.