Correlation Between Gotham Total and Gotham Enhanced

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

By analyzing existing cross correlation between Gotham Total Return and Gotham Enhanced 500, you can compare the effects of market volatilities on Gotham Total and Gotham Enhanced 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 Gotham Total with a short position of Gotham Enhanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gotham Total and Gotham Enhanced.

Diversification Opportunities for Gotham Total and Gotham Enhanced

-0.1

Correlation Coefficient

Gotham Total  Gotham Enhanced

Good diversification

The 3 months correlation between GOTHAM and Gotham is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Gotham Total Return and Gotham Enhanced 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gotham Enhanced 500 and Gotham Total 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 Gotham Total Return are associated (or correlated) with Gotham Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gotham Enhanced 500 has no effect on the direction of Gotham Total i.e., Gotham Total and Gotham Enhanced go up and down completely randomly.

Pair Corralation between Gotham Total and Gotham Enhanced

Assuming the 90 days horizon Gotham Total Return is expected to generate 0.75 times more return on investment than Gotham Enhanced. However, Gotham Total Return is 1.34 times less risky than Gotham Enhanced. It trades about 0.01 of its potential returns per unit of risk. Gotham Enhanced 500 is currently generating about -0.03 per unit of risk. If you would invest  1,262  in Gotham Total Return on December 19, 2024 and sell it today you would earn a total of  4.00  from holding Gotham Total Return or generate 0.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Gotham Total Return  vs.  Gotham Enhanced 500

Gotham Total Return

Risk-Adjusted Performance

Very Weak

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

Gotham Enhanced 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gotham Enhanced 500 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Gotham Enhanced is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gotham Total and Gotham Enhanced

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

The idea behind Gotham Total Return and Gotham Enhanced 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.