Correlation Between GMO Internet and ALLTEL

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

By analyzing existing cross correlation between GMO Internet and ALLTEL P 68, you can compare the effects of market volatilities on GMO Internet and ALLTEL 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 ALLTEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMO Internet and ALLTEL.

Diversification Opportunities for GMO Internet and ALLTEL

0.22

Correlation Coefficient

GMO Internet  ALLTEL

Modest diversification

The 3 months correlation between GMO and ALLTEL is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and ALLTEL P 68 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ALLTEL P 68 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 ALLTEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ALLTEL P 68 has no effect on the direction of GMO Internet i.e., GMO Internet and ALLTEL go up and down completely randomly.

Pair Corralation between GMO Internet and ALLTEL

Assuming the 90 days horizon GMO Internet is expected to generate 1.87 times more return on investment than ALLTEL. However, GMO Internet is 1.87 times more volatile than ALLTEL P 68. It trades about 0.19 of its potential returns per unit of risk. ALLTEL P 68 is currently generating about 0.08 per unit of risk. If you would invest  1,748  in GMO Internet on December 23, 2024 and sell it today you would earn a total of  437.00  from holding GMO Internet or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	30.65%
Values	Daily Returns

GMO Internet  vs.  ALLTEL P 68

GMO Internet

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, GMO Internet reported solid returns over the last few months and may actually be approaching a breakup point.

ALLTEL P 68

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ALLTEL P 68 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ALLTEL is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GMO Internet and ALLTEL

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

The idea behind GMO Internet and ALLTEL P 68 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.