Correlation Between Gmo High and Schwab Treasury

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

Diversification Opportunities for Gmo High and Schwab Treasury

0.77

Correlation Coefficient

Gmo High  Schwab Treasury

Poor diversification

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

Pair Corralation between Gmo High and Schwab Treasury

Assuming the 90 days horizon Gmo High is expected to generate 23.17 times less return on investment than Schwab Treasury. But when comparing it to its historical volatility, Gmo High Yield is 72.89 times less risky than Schwab Treasury. It trades about 0.13 of its potential returns per unit of risk. Schwab Treasury Obligations is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  413.00  in Schwab Treasury Obligations on September 4, 2024 and sell it today you would lose (313.00) from holding Schwab Treasury Obligations or give up 75.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	84.98%
Values	Daily Returns

Gmo High Yield  vs.  Schwab Treasury Obligations

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.

Schwab Treasury Obli

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Treasury Obligations are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Schwab Treasury 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 Schwab Treasury

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

The idea behind Gmo High Yield and Schwab Treasury Obligations 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.