Correlation Between Gmo Resources and Franklin Emerging

Can any of the company-specific risk be diversified away by investing in both Gmo Resources and Franklin Emerging 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 Resources and Franklin Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Gmo Resources Fund and Franklin Emerging Market, you can compare the effects of market volatilities on Gmo Resources and Franklin Emerging 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 Resources with a short position of Franklin Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Resources and Franklin Emerging.

Diversification Opportunities for Gmo Resources and Franklin Emerging

0.69

Correlation Coefficient

Gmo Resources  Franklin Emerging

Poor diversification

The 3 months correlation between Gmo and Franklin is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Resources Fund and Franklin Emerging Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin Emerging Market and Gmo Resources 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 Resources Fund are associated (or correlated) with Franklin Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin Emerging Market has no effect on the direction of Gmo Resources i.e., Gmo Resources and Franklin Emerging go up and down completely randomly.

Pair Corralation between Gmo Resources and Franklin Emerging

Assuming the 90 days horizon Gmo Resources Fund is expected to generate 1.64 times more return on investment than Franklin Emerging. However, Gmo Resources is 1.64 times more volatile than Franklin Emerging Market. It trades about -0.11 of its potential returns per unit of risk. Franklin Emerging Market is currently generating about -0.25 per unit of risk. If you would invest  2,009  in Gmo Resources Fund on October 11, 2024 and sell it today you would lose (75.00) from holding Gmo Resources Fund or give up 3.73% of portfolio value over 90 days.

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

Gmo Resources Fund  vs.  Franklin Emerging Market

Gmo Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo Resources Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Franklin Emerging Market

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Franklin Emerging Market has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Franklin Emerging 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 Resources and Franklin Emerging

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

The idea behind Gmo Resources Fund and Franklin Emerging Market 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.