Correlation Between Vanguard Equity and Gmo Treasury

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

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

Diversification Opportunities for Vanguard Equity and Gmo Treasury

-0.65

Correlation Coefficient

Vanguard Equity  Gmo Treasury

Excellent diversification

The 3 months correlation between Vanguard and Gmo is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Equity Income and Gmo Treasury Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Treasury and Vanguard Equity 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 Vanguard Equity Income are associated (or correlated) with Gmo Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Treasury has no effect on the direction of Vanguard Equity i.e., Vanguard Equity and Gmo Treasury go up and down completely randomly.

Pair Corralation between Vanguard Equity and Gmo Treasury

Assuming the 90 days horizon Vanguard Equity Income is expected to generate 9.6 times more return on investment than Gmo Treasury. However, Vanguard Equity is 9.6 times more volatile than Gmo Treasury Fund. It trades about 0.03 of its potential returns per unit of risk. Gmo Treasury Fund is currently generating about 0.19 per unit of risk. If you would invest  3,917  in Vanguard Equity Income on October 24, 2024 and sell it today you would earn a total of  475.00  from holding Vanguard Equity Income or generate 12.13% return on investment over 90 days.

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

Vanguard Equity Income  vs.  Gmo Treasury Fund

Vanguard Equity Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gmo Treasury

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo Treasury Fund are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gmo Treasury is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Equity and Gmo Treasury

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

The idea behind Vanguard Equity Income and Gmo Treasury Fund 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.