Correlation Between CMT and GAIA
Can any of the company-specific risk be diversified away by investing in both CMT and GAIA 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 CMT and GAIA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CMT and GAIA, you can compare the effects of market volatilities on CMT and GAIA 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 CMT with a short position of GAIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMT and GAIA.
Diversification Opportunities for CMT and GAIA
Good diversification
The 3 months correlation between CMT and GAIA is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding CMT and GAIA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GAIA and CMT 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 CMT are associated (or correlated) with GAIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GAIA has no effect on the direction of CMT i.e., CMT and GAIA go up and down completely randomly.
Pair Corralation between CMT and GAIA
Assuming the 90 days trading horizon CMT is expected to generate 0.56 times more return on investment than GAIA. However, CMT is 1.78 times less risky than GAIA. It trades about 0.35 of its potential returns per unit of risk. GAIA is currently generating about -0.18 per unit of risk. If you would invest 0.56 in CMT on September 4, 2024 and sell it today you would earn a total of 0.20 from holding CMT or generate 35.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CMT vs. GAIA
Performance |
| Timeline |
| CMT |
| GAIA |
CMT and GAIA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CMT and GAIA
The main advantage of trading using opposite CMT and GAIA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMT position performs unexpectedly, GAIA 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 GAIA will offset losses from the drop in GAIA's long position.The idea behind CMT and GAIA 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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