Correlation Between Gmo Resources and Vanguard Small

Can any of the company-specific risk be diversified away by investing in both Gmo Resources and Vanguard 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 Vanguard 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 Vanguard Small Cap Index, you can compare the effects of market volatilities on Gmo Resources and Vanguard 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 Vanguard Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Resources and Vanguard Small.

Diversification Opportunities for Gmo Resources and Vanguard Small

-0.54

Correlation Coefficient

Gmo Resources  Vanguard Small

Excellent diversification

The 3 months correlation between Gmo and Vanguard is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Resources and Vanguard Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard 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 Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Gmo Resources i.e., Gmo Resources and Vanguard Small go up and down completely randomly.

Pair Corralation between Gmo Resources and Vanguard Small

Assuming the 90 days horizon Gmo Resources is expected to under-perform the Vanguard Small. In addition to that, Gmo Resources is 1.21 times more volatile than Vanguard Small Cap Index. It trades about -0.27 of its total potential returns per unit of risk. Vanguard Small Cap Index is currently generating about -0.14 per unit of volatility. If you would invest  34,538  in Vanguard Small Cap Index on September 21, 2024 and sell it today you would lose (1,215) from holding Vanguard Small Cap Index or give up 3.52% 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.  Vanguard Small Cap Index

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.

Vanguard Small Cap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard 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 Vanguard Small

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

The idea behind Gmo Resources and Vanguard Small Cap Index 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.