Correlation Between GMO Internet and COMPUTERSHARE

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

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

Diversification Opportunities for GMO Internet and COMPUTERSHARE

0.75

Correlation Coefficient

GMO Internet  COMPUTERSHARE

Poor diversification

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

Pair Corralation between GMO Internet and COMPUTERSHARE

Assuming the 90 days horizon GMO Internet is expected to generate 4.23 times less return on investment than COMPUTERSHARE. In addition to that, GMO Internet is 1.01 times more volatile than COMPUTERSHARE. It trades about 0.07 of its total potential returns per unit of risk. COMPUTERSHARE is currently generating about 0.28 per unit of volatility. If you would invest  1,610  in COMPUTERSHARE on October 10, 2024 and sell it today you would earn a total of  490.00  from holding COMPUTERSHARE or generate 30.43% 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.  COMPUTERSHARE

GMO Internet

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, GMO Internet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

COMPUTERSHARE

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in COMPUTERSHARE are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, COMPUTERSHARE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMO Internet and COMPUTERSHARE

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

The idea behind GMO Internet and COMPUTERSHARE 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.