Correlation Between T-Mobile and GMO Internet

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

By analyzing existing cross correlation between T Mobile and GMO Internet, you can compare the effects of market volatilities on T-Mobile and GMO Internet 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 T-Mobile with a short position of GMO Internet. Check out your portfolio center. Please also check ongoing floating volatility patterns of T-Mobile and GMO Internet.

Diversification Opportunities for T-Mobile and GMO Internet

0.52

Correlation Coefficient

T-Mobile  GMO Internet

Very weak diversification

The 3 months correlation between T-Mobile and GMO is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding T Mobile and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and T-Mobile 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 T Mobile are associated (or correlated) with GMO Internet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMO Internet has no effect on the direction of T-Mobile i.e., T-Mobile and GMO Internet go up and down completely randomly.

Pair Corralation between T-Mobile and GMO Internet

Assuming the 90 days horizon T Mobile is expected to under-perform the GMO Internet. But the stock apears to be less risky and, when comparing its historical volatility, T Mobile is 1.0 times less risky than GMO Internet. The stock trades about -0.24 of its potential returns per unit of risk. The GMO Internet is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,640  in GMO Internet on October 5, 2024 and sell it today you would lose (20.00) from holding GMO Internet or give up 1.22% of portfolio value over 90 days.

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

T Mobile  vs.  GMO Internet

T Mobile

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days T Mobile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, T-Mobile reported solid returns over the last few months and may actually be approaching a breakup point.

GMO Internet

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days GMO Internet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, GMO Internet is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with T-Mobile and GMO Internet

The main advantage of trading using opposite T-Mobile and GMO Internet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if T-Mobile position performs unexpectedly, GMO Internet 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 Internet will offset losses from the drop in GMO Internet's long position.

The idea behind T Mobile and GMO Internet 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.