Correlation Between Us Government and Gmo Core

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

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

Diversification Opportunities for Us Government and Gmo Core

0.96

Correlation Coefficient

Us Government  Gmo Core

Almost no diversification

The 3 months correlation between GVPIX and Gmo is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Us Government Plus and Gmo E Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo E Plus and Us Government 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 Us Government Plus are associated (or correlated) with Gmo Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo E Plus has no effect on the direction of Us Government i.e., Us Government and Gmo Core go up and down completely randomly.

Pair Corralation between Us Government and Gmo Core

Assuming the 90 days horizon Us Government Plus is expected to under-perform the Gmo Core. In addition to that, Us Government is 3.63 times more volatile than Gmo E Plus. It trades about -0.1 of its total potential returns per unit of risk. Gmo E Plus is currently generating about -0.07 per unit of volatility. If you would invest  1,822  in Gmo E Plus on September 5, 2024 and sell it today you would lose (25.00) from holding Gmo E Plus or give up 1.37% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Us Government Plus  vs.  Gmo E Plus

Us Government Plus

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 technical and fundamental indicators, Gmo Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Us Government and Gmo Core

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

The idea behind Us Government Plus and Gmo E 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.