Correlation Between Gmo Quality and Simt Sp

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

By analyzing existing cross correlation between Gmo Quality Fund and Simt Sp 500, you can compare the effects of market volatilities on Gmo Quality and Simt Sp 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 Quality with a short position of Simt Sp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Quality and Simt Sp.

Diversification Opportunities for Gmo Quality and Simt Sp

0.76

Correlation Coefficient

Gmo Quality  Simt Sp

Poor diversification

The 3 months correlation between Gmo and Simt is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Quality Fund and Simt Sp 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simt Sp 500 and Gmo Quality 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 Quality Fund are associated (or correlated) with Simt Sp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simt Sp 500 has no effect on the direction of Gmo Quality i.e., Gmo Quality and Simt Sp go up and down completely randomly.

Pair Corralation between Gmo Quality and Simt Sp

Assuming the 90 days horizon Gmo Quality Fund is expected to generate 0.81 times more return on investment than Simt Sp. However, Gmo Quality Fund is 1.23 times less risky than Simt Sp. It trades about -0.02 of its potential returns per unit of risk. Simt Sp 500 is currently generating about -0.07 per unit of risk. If you would invest  3,303  in Gmo Quality Fund on December 27, 2024 and sell it today you would lose (35.00) from holding Gmo Quality Fund or give up 1.06% of portfolio value over 90 days.

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

Gmo Quality Fund  vs.  Simt Sp 500

Gmo Quality Fund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gmo Quality Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Gmo Quality is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Simt Sp 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simt Sp 500 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Simt Sp 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 Quality and Simt Sp

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

The idea behind Gmo Quality Fund and Simt Sp 500 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.