Correlation Between Mid Cap and Gmo Core

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

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

Diversification Opportunities for Mid Cap and Gmo Core

-0.38

Correlation Coefficient

Mid Cap  Gmo Core

Very good diversification

The 3 months correlation between Mid and Gmo is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Growth and Gmo E Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo E Plus and Mid Cap 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 Mid Cap Growth are associated (or correlated) with Gmo Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo E Plus has no effect on the direction of Mid Cap i.e., Mid Cap and Gmo Core go up and down completely randomly.

Pair Corralation between Mid Cap and Gmo Core

Assuming the 90 days horizon Mid Cap Growth is expected to under-perform the Gmo Core. In addition to that, Mid Cap is 5.92 times more volatile than Gmo E Plus. It trades about -0.08 of its total potential returns per unit of risk. Gmo E Plus is currently generating about 0.15 per unit of volatility. If you would invest  1,689  in Gmo E Plus on December 18, 2024 and sell it today you would earn a total of  43.00  from holding Gmo E Plus or generate 2.55% return on investment over 90 days.

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

Mid Cap Growth  vs.  Gmo E Plus

Mid Cap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mid Cap Growth 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.

Gmo E Plus

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo E Plus are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gmo Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mid Cap and Gmo Core

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

The idea behind Mid Cap Growth and Gmo E Plus 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.