Correlation Between Gmo Resources and Davenport Small

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

By analyzing existing cross correlation between Gmo Resources and Davenport Small Cap, you can compare the effects of market volatilities on Gmo Resources and Davenport Small 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 Resources with a short position of Davenport Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Resources and Davenport Small.

Diversification Opportunities for Gmo Resources and Davenport Small

-0.42

Correlation Coefficient

Gmo Resources  Davenport Small

Very good diversification

The 3 months correlation between Gmo and Davenport is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Resources and Davenport Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davenport Small Cap and Gmo Resources 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 Resources are associated (or correlated) with Davenport Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davenport Small Cap has no effect on the direction of Gmo Resources i.e., Gmo Resources and Davenport Small go up and down completely randomly.

Pair Corralation between Gmo Resources and Davenport Small

Assuming the 90 days horizon Gmo Resources is expected to under-perform the Davenport Small. In addition to that, Gmo Resources is 1.27 times more volatile than Davenport Small Cap. It trades about -0.3 of its total potential returns per unit of risk. Davenport Small Cap is currently generating about -0.17 per unit of volatility. If you would invest  1,851  in Davenport Small Cap on September 22, 2024 and sell it today you would lose (76.00) from holding Davenport Small Cap or give up 4.11% of portfolio value over 90 days.

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

Gmo Resources  vs.  Davenport Small Cap

Gmo Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo Resources 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.

Davenport Small Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Davenport Small Cap are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Davenport Small 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 Resources and Davenport Small

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

The idea behind Gmo Resources and Davenport Small Cap 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.