Correlation Between Northern Small and Gmo Trust

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

By analyzing existing cross correlation between Northern Small Cap and Gmo Trust , you can compare the effects of market volatilities on Northern Small and Gmo Trust 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 Northern Small with a short position of Gmo Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Small and Gmo Trust.

Diversification Opportunities for Northern Small and Gmo Trust

0.48

Correlation Coefficient

Northern Small  Gmo Trust

Very weak diversification

The 3 months correlation between Northern and Gmo is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Northern Small Cap and Gmo Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Trust and Northern Small 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 Northern Small Cap are associated (or correlated) with Gmo Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Trust has no effect on the direction of Northern Small i.e., Northern Small and Gmo Trust go up and down completely randomly.

Pair Corralation between Northern Small and Gmo Trust

Assuming the 90 days horizon Northern Small Cap is expected to under-perform the Gmo Trust. In addition to that, Northern Small is 1.49 times more volatile than Gmo Trust . It trades about -0.09 of its total potential returns per unit of risk. Gmo Trust is currently generating about 0.02 per unit of volatility. If you would invest  2,151  in Gmo Trust on December 21, 2024 and sell it today you would earn a total of  15.00  from holding Gmo Trust or generate 0.7% return on investment over 90 days.

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

Northern Small Cap  vs.  Gmo Trust

Northern Small Cap

Risk-Adjusted Performance

Very Weak

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

Gmo Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo Trust are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gmo Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Northern Small and Gmo Trust

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

The idea behind Northern Small Cap and Gmo Trust 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.