Correlation Between Commonwealth Global and Gmo Equity
Can any of the company-specific risk be diversified away by investing in both Commonwealth Global and Gmo Equity 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 Equity 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 Equity Allocation, you can compare the effects of market volatilities on Commonwealth Global and Gmo Equity 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 Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Global and Gmo Equity.
Diversification Opportunities for Commonwealth Global and Gmo Equity
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Commonwealth and Gmo is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Global Fund and Gmo Equity Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Equity Allocation 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 Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Equity Allocation has no effect on the direction of Commonwealth Global i.e., Commonwealth Global and Gmo Equity go up and down completely randomly.
Pair Corralation between Commonwealth Global and Gmo Equity
Assuming the 90 days horizon Commonwealth Global is expected to generate 1.5 times less return on investment than Gmo Equity. But when comparing it to its historical volatility, Commonwealth Global Fund is 1.21 times less risky than Gmo Equity. It trades about 0.12 of its potential returns per unit of risk. Gmo Equity Allocation is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 1,436 in Gmo Equity Allocation on August 31, 2024 and sell it today you would earn a total of 46.00 from holding Gmo Equity Allocation or generate 3.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Global Fund vs. Gmo Equity Allocation
Performance |
| Timeline |
| Commonwealth Global |
| Gmo Equity Allocation |
Commonwealth Global and Gmo Equity Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Global and Gmo Equity
The main advantage of trading using opposite Commonwealth Global and Gmo Equity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Global position performs unexpectedly, Gmo Equity 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 Equity will offset losses from the drop in Gmo Equity's long position.The idea behind Commonwealth Global Fund and Gmo Equity 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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