Correlation Between Us Strategic and Gmo Small

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

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

Diversification Opportunities for Us Strategic and Gmo Small

0.73

Correlation Coefficient

Us Strategic  Gmo Small

Poor diversification

The 3 months correlation between RUSTX and Gmo is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Us Strategic Equity and Gmo Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Small Cap and Us Strategic 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 Us Strategic Equity are associated (or correlated) with Gmo Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Small Cap has no effect on the direction of Us Strategic i.e., Us Strategic and Gmo Small go up and down completely randomly.

Pair Corralation between Us Strategic and Gmo Small

Assuming the 90 days horizon Us Strategic Equity is expected to generate 0.3 times more return on investment than Gmo Small. However, Us Strategic Equity is 3.37 times less risky than Gmo Small. It trades about 0.15 of its potential returns per unit of risk. Gmo Small Cap is currently generating about -0.11 per unit of risk. If you would invest  1,847  in Us Strategic Equity on September 20, 2024 and sell it today you would earn a total of  26.00  from holding Us Strategic Equity or generate 1.41% return on investment over 90 days.

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

Us Strategic Equity  vs.  Gmo Small Cap

Us Strategic Equity

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Us Strategic Equity are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Us Strategic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gmo Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Us Strategic and Gmo Small

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

The idea behind Us Strategic Equity and Gmo Small Cap 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.