Correlation Between Gotham Large and Gotham Index

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

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

Diversification Opportunities for Gotham Large and Gotham Index

0.75

Correlation Coefficient

Gotham Large  Gotham Index

Poor diversification

The 3 months correlation between Gotham and Gotham is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Gotham Large Value and Gotham Index Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gotham Index Plus and Gotham Large 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 Large Value are associated (or correlated) with Gotham Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gotham Index Plus has no effect on the direction of Gotham Large i.e., Gotham Large and Gotham Index go up and down completely randomly.

Pair Corralation between Gotham Large and Gotham Index

Assuming the 90 days horizon Gotham Large Value is expected to under-perform the Gotham Index. In addition to that, Gotham Large is 1.75 times more volatile than Gotham Index Plus. It trades about -0.24 of its total potential returns per unit of risk. Gotham Index Plus is currently generating about -0.16 per unit of volatility. If you would invest  2,928  in Gotham Index Plus on October 12, 2024 and sell it today you would lose (126.00) from holding Gotham Index Plus or give up 4.3% of portfolio value over 90 days.

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

Gotham Large Value  vs.  Gotham Index Plus

Gotham Large Value

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gotham Index Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gotham Index Plus has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Gotham Index 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 Large and Gotham Index

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

The idea behind Gotham Large Value and Gotham Index Plus 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.