Correlation Between Gmo Resources and Schwab Treasury

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

By analyzing existing cross correlation between Gmo Resources and Schwab Treasury Inflation, you can compare the effects of market volatilities on Gmo Resources and Schwab Treasury 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 Schwab Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Resources and Schwab Treasury.

Diversification Opportunities for Gmo Resources and Schwab Treasury

0.85

Correlation Coefficient

Gmo Resources  Schwab Treasury

Very poor diversification

The 3 months correlation between Gmo and Schwab is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Resources and Schwab Treasury Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Treasury Inflation 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 Schwab Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Treasury Inflation has no effect on the direction of Gmo Resources i.e., Gmo Resources and Schwab Treasury go up and down completely randomly.

Pair Corralation between Gmo Resources and Schwab Treasury

Assuming the 90 days horizon Gmo Resources is expected to under-perform the Schwab Treasury. In addition to that, Gmo Resources is 5.09 times more volatile than Schwab Treasury Inflation. It trades about -0.31 of its total potential returns per unit of risk. Schwab Treasury Inflation is currently generating about -0.29 per unit of volatility. If you would invest  1,025  in Schwab Treasury Inflation on September 27, 2024 and sell it today you would lose (18.00) from holding Schwab Treasury Inflation or give up 1.76% of portfolio value over 90 days.

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

Gmo Resources  vs.  Schwab Treasury Inflation

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 weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Schwab Treasury Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schwab Treasury Inflation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Schwab Treasury 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 Schwab Treasury

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

The idea behind Gmo Resources and Schwab Treasury Inflation 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.