Correlation Between M Large and Gamco Natural

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

By analyzing existing cross correlation between M Large Cap and Gamco Natural Resources, you can compare the effects of market volatilities on M Large and Gamco Natural 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 M Large with a short position of Gamco Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of M Large and Gamco Natural.

Diversification Opportunities for M Large and Gamco Natural

0.02

Correlation Coefficient

M Large  Gamco Natural

Significant diversification

The 3 months correlation between MTCGX and Gamco is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding M Large Cap and Gamco Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamco Natural Resources and M 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 M Large Cap are associated (or correlated) with Gamco Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gamco Natural Resources has no effect on the direction of M Large i.e., M Large and Gamco Natural go up and down completely randomly.

Pair Corralation between M Large and Gamco Natural

Assuming the 90 days horizon M Large Cap is expected to generate 2.0 times more return on investment than Gamco Natural. However, M Large is 2.0 times more volatile than Gamco Natural Resources. It trades about -0.06 of its potential returns per unit of risk. Gamco Natural Resources is currently generating about -0.18 per unit of risk. If you would invest  3,599  in M Large Cap on October 6, 2024 and sell it today you would lose (203.00) from holding M Large Cap or give up 5.64% of portfolio value over 90 days.

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

M Large Cap  vs.  Gamco Natural Resources

M Large Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days M Large Cap has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, M Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gamco Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with M Large and Gamco Natural

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

The idea behind M Large Cap and Gamco Natural Resources 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.