Correlation Between GMO Internet and Nabors Energy

Can any of the company-specific risk be diversified away by investing in both GMO Internet and Nabors Energy 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 Internet and Nabors Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GMO Internet and Nabors Energy Transition, you can compare the effects of market volatilities on GMO Internet and Nabors Energy 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 Internet with a short position of Nabors Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMO Internet and Nabors Energy.

Diversification Opportunities for GMO Internet and Nabors Energy

0.4

Correlation Coefficient

GMO Internet  Nabors Energy

Very weak diversification

The 3 months correlation between GMO and Nabors is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and Nabors Energy Transition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nabors Energy Transition and GMO Internet 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 Internet are associated (or correlated) with Nabors Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nabors Energy Transition has no effect on the direction of GMO Internet i.e., GMO Internet and Nabors Energy go up and down completely randomly.

Pair Corralation between GMO Internet and Nabors Energy

Assuming the 90 days horizon GMO Internet is expected to generate 1.6 times more return on investment than Nabors Energy. However, GMO Internet is 1.6 times more volatile than Nabors Energy Transition. It trades about 0.08 of its potential returns per unit of risk. Nabors Energy Transition is currently generating about 0.05 per unit of risk. If you would invest  1,124  in GMO Internet on October 11, 2024 and sell it today you would earn a total of  556.00  from holding GMO Internet or generate 49.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	54.74%
Values	Daily Returns

GMO Internet  vs.  Nabors Energy Transition

GMO Internet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GMO Internet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Nabors Energy Transition

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nabors Energy Transition are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental indicators, Nabors Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMO Internet and Nabors Energy

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

The idea behind GMO Internet and Nabors Energy Transition 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.