Correlation Between ALLTEL and GMO Internet

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

By analyzing existing cross correlation between ALLTEL P 68 and GMO Internet, you can compare the effects of market volatilities on ALLTEL 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 ALLTEL with a short position of GMO Internet. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALLTEL and GMO Internet.

Diversification Opportunities for ALLTEL and GMO Internet

0.36

Correlation Coefficient

ALLTEL  GMO Internet

Weak diversification

The 3 months correlation between ALLTEL and GMO is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding ALLTEL P 68 and GMO Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMO Internet and ALLTEL 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 ALLTEL P 68 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 ALLTEL i.e., ALLTEL and GMO Internet go up and down completely randomly.

Pair Corralation between ALLTEL and GMO Internet

Assuming the 90 days trading horizon ALLTEL P 68 is expected to generate 0.81 times more return on investment than GMO Internet. However, ALLTEL P 68 is 1.24 times less risky than GMO Internet. It trades about 0.03 of its potential returns per unit of risk. GMO Internet is currently generating about 0.01 per unit of risk. If you would invest  10,509  in ALLTEL P 68 on October 8, 2024 and sell it today you would earn a total of  62.00  from holding ALLTEL P 68 or generate 0.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	25.81%
Values	Daily Returns

ALLTEL P 68  vs.  GMO Internet

ALLTEL P 68

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ALLTEL P 68 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ALLTEL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

GMO Internet

Risk-Adjusted Performance

0 of 100

Very Weak

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 ALLTEL and GMO Internet

The main advantage of trading using opposite ALLTEL and GMO Internet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ALLTEL 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 ALLTEL P 68 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.