Correlation Between Materials Portfolio and Gmo Resources
Can any of the company-specific risk be diversified away by investing in both Materials Portfolio and Gmo Resources 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 Materials Portfolio and Gmo Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Materials Portfolio Fidelity and Gmo Resources, you can compare the effects of market volatilities on Materials Portfolio and Gmo Resources 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 Materials Portfolio with a short position of Gmo Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Portfolio and Gmo Resources.
Diversification Opportunities for Materials Portfolio and Gmo Resources
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Materials and Gmo is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Materials Portfolio Fidelity and Gmo Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Resources and Materials Portfolio 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 Materials Portfolio Fidelity are associated (or correlated) with Gmo Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Resources has no effect on the direction of Materials Portfolio i.e., Materials Portfolio and Gmo Resources go up and down completely randomly.
Pair Corralation between Materials Portfolio and Gmo Resources
Assuming the 90 days horizon Materials Portfolio Fidelity is expected to generate 0.84 times more return on investment than Gmo Resources. However, Materials Portfolio Fidelity is 1.18 times less risky than Gmo Resources. It trades about -0.02 of its potential returns per unit of risk. Gmo Resources is currently generating about -0.03 per unit of risk. If you would invest 9,262 in Materials Portfolio Fidelity on November 27, 2024 and sell it today you would lose (1,010) from holding Materials Portfolio Fidelity or give up 10.9% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Materials Portfolio Fidelity vs. Gmo Resources
Performance |
| Timeline |
| Materials Portfolio |
| Gmo Resources |
Materials Portfolio and Gmo Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Materials Portfolio and Gmo Resources
The main advantage of trading using opposite Materials Portfolio and Gmo Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Portfolio position performs unexpectedly, Gmo Resources 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 Resources will offset losses from the drop in Gmo Resources' long position.The idea behind Materials Portfolio Fidelity and Gmo Resources 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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