Correlation Between Gmo Core and Gmo Equity

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

Diversification Opportunities for Gmo Core and Gmo Equity

0.7

Correlation Coefficient

Gmo Core  Gmo Equity

Poor diversification

The 3 months correlation between Gmo and Gmo is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Gmo E Plus and Gmo Equity Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Equity Allocation 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 Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Equity Allocation has no effect on the direction of Gmo Core i.e., Gmo Core and Gmo Equity go up and down completely randomly.

Pair Corralation between Gmo Core and Gmo Equity

Assuming the 90 days horizon Gmo E Plus is expected to under-perform the Gmo Equity. But the mutual fund apears to be less risky and, when comparing its historical volatility, Gmo E Plus is 3.74 times less risky than Gmo Equity. The mutual fund trades about -0.42 of its potential returns per unit of risk. The Gmo Equity Allocation is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  1,380  in Gmo Equity Allocation on October 11, 2024 and sell it today you would lose (28.00) from holding Gmo Equity Allocation or give up 2.03% of portfolio value over 90 days.

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

Gmo E Plus  vs.  Gmo Equity Allocation

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 Equity Allocation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo Equity Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Gmo Equity 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 Core and Gmo Equity

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

The idea behind Gmo E Plus and Gmo Equity Allocation 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.