Correlation Between Gmo Us and California Tax

Can any of the company-specific risk be diversified away by investing in both Gmo Us and California Tax 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 Us and California Tax 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 California Tax Free Income, you can compare the effects of market volatilities on Gmo Us and California Tax 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 Us with a short position of California Tax. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Us and California Tax.

Diversification Opportunities for Gmo Us and California Tax

0.08

Correlation Coefficient

Gmo Us  California Tax

Significant diversification

The 3 months correlation between Gmo and California is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Equity Allocation and California Tax Free Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on California Tax Free and Gmo Us 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 California Tax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of California Tax Free has no effect on the direction of Gmo Us i.e., Gmo Us and California Tax go up and down completely randomly.

Pair Corralation between Gmo Us and California Tax

Assuming the 90 days horizon Gmo Equity Allocation is expected to under-perform the California Tax. In addition to that, Gmo Us is 5.63 times more volatile than California Tax Free Income. It trades about -0.1 of its total potential returns per unit of risk. California Tax Free Income is currently generating about -0.12 per unit of volatility. If you would invest  1,057  in California Tax Free Income on December 29, 2024 and sell it today you would lose (14.00) from holding California Tax Free Income or give up 1.32% of portfolio value over 90 days.

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

Gmo Equity Allocation  vs.  California Tax Free Income

Gmo Equity Allocation

Risk-Adjusted Performance

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 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.

California Tax Free

Risk-Adjusted Performance

Very Weak

Over the last 90 days California Tax Free Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, California Tax 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 Us and California Tax

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

The idea behind Gmo Equity Allocation and California Tax Free Income 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.