Correlation Between GMO Internet and US Bancorp

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

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

Diversification Opportunities for GMO Internet and US Bancorp

0.45

Correlation Coefficient

GMO Internet  US Bancorp

Very weak diversification

The 3 months correlation between GMO and UB5 is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of GMO Internet i.e., GMO Internet and US Bancorp go up and down completely randomly.

Pair Corralation between GMO Internet and US Bancorp

Assuming the 90 days horizon GMO Internet is expected to generate 0.88 times more return on investment than US Bancorp. However, GMO Internet is 1.14 times less risky than US Bancorp. It trades about 0.11 of its potential returns per unit of risk. US Bancorp is currently generating about 0.1 per unit of risk. If you would invest  1,520  in GMO Internet on October 6, 2024 and sell it today you would earn a total of  110.00  from holding GMO Internet or generate 7.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.5%
Values	Daily Returns

GMO Internet  vs.  US Bancorp

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 fragile basic indicators, GMO Internet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

US Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, US Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMO Internet and US Bancorp

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

The idea behind GMO Internet and US Bancorp 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.

Check out your portfolio center.

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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.