Correlation Between Gmo High and Lkcm Small

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

Diversification Opportunities for Gmo High and Lkcm Small

-0.18

Correlation Coefficient

Gmo High  Lkcm Small

Good diversification

The 3 months correlation between Gmo and Lkcm is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Lkcm Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lkcm Small Cap 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 Lkcm Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lkcm Small Cap has no effect on the direction of Gmo High i.e., Gmo High and Lkcm Small go up and down completely randomly.

Pair Corralation between Gmo High and Lkcm Small

Assuming the 90 days horizon Gmo High Yield is expected to generate 0.2 times more return on investment than Lkcm Small. However, Gmo High Yield is 4.93 times less risky than Lkcm Small. It trades about 0.26 of its potential returns per unit of risk. Lkcm Small Cap is currently generating about -0.06 per unit of risk. If you would invest  1,667  in Gmo High Yield on December 2, 2024 and sell it today you would earn a total of  32.00  from holding Gmo High Yield or generate 1.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Gmo High Yield  vs.  Lkcm Small Cap

Gmo High Yield

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo High Yield are ranked lower than 9 (%) 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.

Lkcm Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lkcm Small Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Gmo High and Lkcm Small

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

The idea behind Gmo High Yield and Lkcm Small 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 Transaction History module to view history of all your transactions and understand their impact on performance.