Correlation Between GMO Internet and MidCap Financial

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

By analyzing existing cross correlation between GMO Internet and MidCap Financial Investment, you can compare the effects of market volatilities on GMO Internet and MidCap Financial 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 Internet with a short position of MidCap Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMO Internet and MidCap Financial.

Diversification Opportunities for GMO Internet and MidCap Financial

0.62

Correlation Coefficient

GMO Internet  MidCap Financial

Poor diversification

The 3 months correlation between GMO and MidCap is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and MidCap Financial Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MidCap Financial Inv and GMO Internet 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 Internet are associated (or correlated) with MidCap Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MidCap Financial Inv has no effect on the direction of GMO Internet i.e., GMO Internet and MidCap Financial go up and down completely randomly.

Pair Corralation between GMO Internet and MidCap Financial

Assuming the 90 days horizon GMO Internet is expected to generate 6.07 times more return on investment than MidCap Financial. However, GMO Internet is 6.07 times more volatile than MidCap Financial Investment. It trades about 0.07 of its potential returns per unit of risk. MidCap Financial Investment is currently generating about 0.07 per unit of risk. If you would invest  442.00  in GMO Internet on October 22, 2024 and sell it today you would earn a total of  1,118  from holding GMO Internet or generate 252.94% return on investment over 90 days.

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

GMO Internet  vs.  MidCap Financial Investment

GMO Internet

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

MidCap Financial Inv

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, MidCap Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with GMO Internet and MidCap Financial

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

The idea behind GMO Internet and MidCap Financial Investment 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .