Correlation Between Small Cap and Gmo International

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

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

Diversification Opportunities for Small Cap and Gmo International

-0.79

Correlation Coefficient

Small Cap  Gmo International

Pay attention - limited upside

The 3 months correlation between Small and Gmo is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Stock and Gmo International Opportunisti in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo International and Small 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 Small Cap Stock are associated (or correlated) with Gmo International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo International has no effect on the direction of Small Cap i.e., Small Cap and Gmo International go up and down completely randomly.

Pair Corralation between Small Cap and Gmo International

Assuming the 90 days horizon Small Cap Stock is expected to under-perform the Gmo International. In addition to that, Small Cap is 1.32 times more volatile than Gmo International Opportunistic. It trades about -0.1 of its total potential returns per unit of risk. Gmo International Opportunistic is currently generating about 0.26 per unit of volatility. If you would invest  1,381  in Gmo International Opportunistic on December 28, 2024 and sell it today you would earn a total of  199.00  from holding Gmo International Opportunistic or generate 14.41% return on investment over 90 days.

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

Small Cap Stock  vs.  Gmo International Opportunisti

Small Cap Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Stock 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 International

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo International Opportunistic are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Gmo International showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Small Cap and Gmo International

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

The idea behind Small Cap Stock and Gmo International Opportunistic 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.