Correlation Between Gmo High and Franklin Government

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

Diversification Opportunities for Gmo High and Franklin Government

0.28

Correlation Coefficient

Gmo High  Franklin Government

Modest diversification

The 3 months correlation between Gmo and Franklin is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Franklin Government Money in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Government Money 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 Franklin Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Government Money has no effect on the direction of Gmo High i.e., Gmo High and Franklin Government go up and down completely randomly.

Pair Corralation between Gmo High and Franklin Government

Assuming the 90 days horizon Gmo High Yield is expected to generate 1.87 times more return on investment than Franklin Government. However, Gmo High is 1.87 times more volatile than Franklin Government Money. It trades about 0.16 of its potential returns per unit of risk. Franklin Government Money is currently generating about 0.13 per unit of risk. If you would invest  1,650  in Gmo High Yield on September 13, 2024 and sell it today you would earn a total of  162.00  from holding Gmo High Yield or generate 9.82% 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.  Franklin Government Money

Gmo High Yield

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo High Yield are ranked lower than 11 (%) 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.

Franklin Government Money

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Government Money are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Franklin Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gmo High and Franklin Government

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

The idea behind Gmo High Yield and Franklin Government Money 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.