Correlation Between Gmo High and Blue Chip

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

Diversification Opportunities for Gmo High and Blue Chip

0.63

Correlation Coefficient

Gmo High  Blue Chip

Poor diversification

The 3 months correlation between GMO and Blue is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Blue Chip Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Blue Chip Fund 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 Blue Chip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Blue Chip Fund has no effect on the direction of Gmo High i.e., Gmo High and Blue Chip go up and down completely randomly.

Pair Corralation between Gmo High and Blue Chip

Assuming the 90 days horizon Gmo High is expected to generate 2.84 times less return on investment than Blue Chip. But when comparing it to its historical volatility, Gmo High Yield is 3.13 times less risky than Blue Chip. It trades about 0.13 of its potential returns per unit of risk. Blue Chip Fund is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,796  in Blue Chip Fund on September 5, 2024 and sell it today you would earn a total of  1,920  from holding Blue Chip Fund or generate 68.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	84.49%
Values	Daily Returns

Gmo High Yield  vs.  Blue Chip Fund

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.

Blue Chip Fund

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Blue Chip Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly weak technical and fundamental indicators, Blue Chip may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Gmo High and Blue Chip

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

The idea behind Gmo High Yield and Blue Chip Fund 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.