Correlation Between Gmo High and Us Equity

Can any of the company-specific risk be diversified away by investing in both Gmo High and Us Equity 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 Us Equity 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 The Equity Growth, you can compare the effects of market volatilities on Gmo High and Us Equity 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 Us Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo High and Us Equity.

Diversification Opportunities for Gmo High and Us Equity

0.77

Correlation Coefficient

Gmo High  Us Equity

Poor diversification

The 3 months correlation between GMO and BGGKX is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and The Equity Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Growth 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 Us Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Growth has no effect on the direction of Gmo High i.e., Gmo High and Us Equity go up and down completely randomly.

Pair Corralation between Gmo High and Us Equity

Assuming the 90 days horizon Gmo High is expected to generate 11.88 times less return on investment than Us Equity. But when comparing it to its historical volatility, Gmo High Yield is 7.43 times less risky than Us Equity. It trades about 0.19 of its potential returns per unit of risk. The Equity Growth is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  2,221  in The Equity Growth on September 5, 2024 and sell it today you would earn a total of  578.00  from holding The Equity Growth or generate 26.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Gmo High Yield  vs.  The Equity Growth

Gmo High Yield

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo High Yield are ranked lower than 14 (%) 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.

Equity Growth

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Equity Growth are ranked lower than 23 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward-looking signals, Us Equity showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gmo High and Us Equity

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

The idea behind Gmo High Yield and The Equity Growth 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 Stocks Directory module to find actively traded stocks across global markets.