Correlation Between Gmo High and Capital Income

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

Diversification Opportunities for Gmo High and Capital Income

0.46

Correlation Coefficient

Gmo High  Capital Income

Very weak diversification

The 3 months correlation between GMO and Capital is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Capital Income Builder in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Income Builder 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 Capital Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Income Builder has no effect on the direction of Gmo High i.e., Gmo High and Capital Income go up and down completely randomly.

Pair Corralation between Gmo High and Capital Income

Assuming the 90 days horizon Gmo High Yield is expected to generate 0.42 times more return on investment than Capital Income. However, Gmo High Yield is 2.4 times less risky than Capital Income. It trades about 0.2 of its potential returns per unit of risk. Capital Income Builder is currently generating about 0.05 per unit of risk. If you would invest  1,770  in Gmo High Yield on September 4, 2024 and sell it today you would earn a total of  38.00  from holding Gmo High Yield or generate 2.15% return on investment over 90 days.

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

Gmo High Yield  vs.  Capital Income Builder

Gmo High Yield

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo High Yield are ranked lower than 15 (%) 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.

Capital Income Builder

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Income Builder are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Capital Income 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 Capital Income

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

The idea behind Gmo High Yield and Capital Income Builder 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.