Correlation Between Gmo High and Bdvex

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

By analyzing existing cross correlation between Gmo High Yield and Bdvex, you can compare the effects of market volatilities on Gmo High and Bdvex 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 High with a short position of Bdvex. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo High and Bdvex.

Diversification Opportunities for Gmo High and Bdvex

0.39

Correlation Coefficient

Gmo High  Bdvex

Weak diversification

The 3 months correlation between Gmo and Bdvex is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Bdvex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bdvex and Gmo High 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 High Yield are associated (or correlated) with Bdvex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bdvex has no effect on the direction of Gmo High i.e., Gmo High and Bdvex go up and down completely randomly.

Pair Corralation between Gmo High and Bdvex

Assuming the 90 days horizon Gmo High is expected to generate 17.88 times less return on investment than Bdvex. But when comparing it to its historical volatility, Gmo High Yield is 41.14 times less risky than Bdvex. It trades about 0.14 of its potential returns per unit of risk. Bdvex is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  985.00  in Bdvex on September 20, 2024 and sell it today you would earn a total of  310.00  from holding Bdvex or generate 31.47% return on investment over 90 days.

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

Gmo High Yield  vs.  Bdvex

Gmo High Yield

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo High Yield are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gmo High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Bdvex

Risk-Adjusted Performance

9 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Bdvex are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Bdvex showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gmo High and Bdvex

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

The idea behind Gmo High Yield and Bdvex 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.