Correlation Between Gmo Core and Gmo Small

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

By analyzing existing cross correlation between Gmo E Plus and Gmo Small Cap, you can compare the effects of market volatilities on Gmo Core and Gmo Small 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 Core with a short position of Gmo Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Core and Gmo Small.

Diversification Opportunities for Gmo Core and Gmo Small

0.52

Correlation Coefficient

Gmo Core  Gmo Small

Very weak diversification

The 3 months correlation between Gmo and Gmo is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Gmo E Plus and Gmo Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Small Cap and Gmo Core 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 E Plus are associated (or correlated) with Gmo Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Small Cap has no effect on the direction of Gmo Core i.e., Gmo Core and Gmo Small go up and down completely randomly.

Pair Corralation between Gmo Core and Gmo Small

Assuming the 90 days horizon Gmo E Plus is expected to generate 0.17 times more return on investment than Gmo Small. However, Gmo E Plus is 5.81 times less risky than Gmo Small. It trades about -0.4 of its potential returns per unit of risk. Gmo Small Cap is currently generating about -0.37 per unit of risk. If you would invest  1,717  in Gmo E Plus on October 11, 2024 and sell it today you would lose (37.00) from holding Gmo E Plus or give up 2.15% of portfolio value over 90 days.

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

Gmo E Plus  vs.  Gmo Small Cap

Gmo E Plus

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gmo Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Gmo Core and Gmo Small

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

The idea behind Gmo E Plus and Gmo Small Cap 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.