Correlation Between GMO Internet and GENERAL

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

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

Diversification Opportunities for GMO Internet and GENERAL

-0.09

Correlation Coefficient

GMO Internet  GENERAL

Good diversification

The 3 months correlation between GMO and GENERAL is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and GENERAL ELEC CAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GENERAL ELEC CAP 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 GENERAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GENERAL ELEC CAP has no effect on the direction of GMO Internet i.e., GMO Internet and GENERAL go up and down completely randomly.

Pair Corralation between GMO Internet and GENERAL

Assuming the 90 days horizon GMO Internet is expected to generate 1.14 times more return on investment than GENERAL. However, GMO Internet is 1.14 times more volatile than GENERAL ELEC CAP. It trades about 0.01 of its potential returns per unit of risk. GENERAL ELEC CAP is currently generating about -0.11 per unit of risk. If you would invest  1,690  in GMO Internet on October 26, 2024 and sell it today you would earn a total of  5.00  from holding GMO Internet or generate 0.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	46.67%
Values	Daily Returns

GMO Internet  vs.  GENERAL ELEC CAP

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.

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GENERAL ELEC CAP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Bond's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for GENERAL ELEC CAP investors.

Pair Trading with GMO Internet and GENERAL

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

The idea behind GMO Internet and GENERAL ELEC 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.