Correlation Between Vanguard Materials and Gmo Trust

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

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

Diversification Opportunities for Vanguard Materials and Gmo Trust

0.69

Correlation Coefficient

Vanguard Materials  Gmo Trust

Poor diversification

The 3 months correlation between Vanguard and Gmo is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Gmo Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Trust and Vanguard Materials 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 Materials Index are associated (or correlated) with Gmo Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Trust has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Gmo Trust go up and down completely randomly.

Pair Corralation between Vanguard Materials and Gmo Trust

Assuming the 90 days horizon Vanguard Materials Index is expected to under-perform the Gmo Trust. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard Materials Index is 1.36 times less risky than Gmo Trust. The mutual fund trades about -0.07 of its potential returns per unit of risk. The Gmo Trust is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,967  in Gmo Trust on October 24, 2024 and sell it today you would lose (40.00) from holding Gmo Trust or give up 2.03% of portfolio value over 90 days.

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

Vanguard Materials Index  vs.  Gmo Trust

Vanguard Materials Index

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gmo Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo Trust has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Gmo Trust 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 Materials and Gmo Trust

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

The idea behind Vanguard Materials Index and Gmo Trust 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.