Correlation Between Commonwealth Global and Gmo Benchmark
Can any of the company-specific risk be diversified away by investing in both Commonwealth Global and Gmo Benchmark 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 Commonwealth Global and Gmo Benchmark into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commonwealth Global Fund and Gmo Benchmark Free Allocation, you can compare the effects of market volatilities on Commonwealth Global and Gmo Benchmark 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 Commonwealth Global with a short position of Gmo Benchmark. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Global and Gmo Benchmark.
Diversification Opportunities for Commonwealth Global and Gmo Benchmark
0.26 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Commonwealth and Gmo is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Global Fund and Gmo Benchmark Free Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Benchmark Free and Commonwealth Global 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 Commonwealth Global Fund are associated (or correlated) with Gmo Benchmark. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Benchmark Free has no effect on the direction of Commonwealth Global i.e., Commonwealth Global and Gmo Benchmark go up and down completely randomly.
Pair Corralation between Commonwealth Global and Gmo Benchmark
Assuming the 90 days horizon Commonwealth Global Fund is expected to generate 1.46 times more return on investment than Gmo Benchmark. However, Commonwealth Global is 1.46 times more volatile than Gmo Benchmark Free Allocation. It trades about 0.27 of its potential returns per unit of risk. Gmo Benchmark Free Allocation is currently generating about -0.04 per unit of risk. If you would invest 2,090 in Commonwealth Global Fund on September 3, 2024 and sell it today you would earn a total of 82.00 from holding Commonwealth Global Fund or generate 3.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Global Fund vs. Gmo Benchmark Free Allocation
Performance |
| Timeline |
| Commonwealth Global |
| Gmo Benchmark Free |
Commonwealth Global and Gmo Benchmark Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Global and Gmo Benchmark
The main advantage of trading using opposite Commonwealth Global and Gmo Benchmark positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Global position performs unexpectedly, Gmo Benchmark 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 Benchmark will offset losses from the drop in Gmo Benchmark's long position.The idea behind Commonwealth Global Fund and Gmo Benchmark Free Allocation 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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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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