Correlation Between Gmo Global and Tax-free Conservative

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

By analyzing existing cross correlation between Gmo Global Equity and Tax Free Conservative Income, you can compare the effects of market volatilities on Gmo Global and Tax-free Conservative 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 Global with a short position of Tax-free Conservative. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Global and Tax-free Conservative.

Diversification Opportunities for Gmo Global and Tax-free Conservative

-0.36

Correlation Coefficient

Gmo Global  Tax-free Conservative

Very good diversification

The 3 months correlation between Gmo and Tax-free is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Global Equity and Tax Free Conservative Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Free Conservative and Gmo Global 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 Global Equity are associated (or correlated) with Tax-free Conservative. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Free Conservative has no effect on the direction of Gmo Global i.e., Gmo Global and Tax-free Conservative go up and down completely randomly.

Pair Corralation between Gmo Global and Tax-free Conservative

Assuming the 90 days horizon Gmo Global Equity is expected to under-perform the Tax-free Conservative. In addition to that, Gmo Global is 65.03 times more volatile than Tax Free Conservative Income. It trades about -0.25 of its total potential returns per unit of risk. Tax Free Conservative Income is currently generating about -0.22 per unit of volatility. If you would invest  1,001  in Tax Free Conservative Income on October 4, 2024 and sell it today you would lose (1.00) from holding Tax Free Conservative Income or give up 0.1% of portfolio value over 90 days.

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

Gmo Global Equity  vs.  Tax Free Conservative Income

Gmo Global Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo Global Equity 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.

Tax Free Conservative

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Free Conservative Income are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Tax-free Conservative 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 Global and Tax-free Conservative

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

The idea behind Gmo Global Equity and Tax Free Conservative 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.

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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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.