Correlation Between Gmo Global and Small Cap
Can any of the company-specific risk be diversified away by investing in both Gmo Global and Small Cap 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 Gmo Global and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gmo Global Equity and Small Cap Equity, you can compare the effects of market volatilities on Gmo Global and Small Cap 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 Gmo Global with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Global and Small Cap.
Diversification Opportunities for Gmo Global and Small Cap
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Gmo and Small is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Global Equity and Small Cap Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Equity and Gmo 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 Gmo Global Equity are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Equity has no effect on the direction of Gmo Global i.e., Gmo Global and Small Cap go up and down completely randomly.
Pair Corralation between Gmo Global and Small Cap
Assuming the 90 days horizon Gmo Global is expected to generate 1.12 times less return on investment than Small Cap. But when comparing it to its historical volatility, Gmo Global Equity is 1.58 times less risky than Small Cap. It trades about 0.08 of its potential returns per unit of risk. Small Cap Equity is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 1,564 in Small Cap Equity on August 24, 2024 and sell it today you would earn a total of 418.00 from holding Small Cap Equity or generate 26.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Gmo Global Equity vs. Small Cap Equity
Performance |
| Timeline |
| Gmo Global Equity |
| Small Cap Equity |
Gmo Global and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gmo Global and Small Cap
The main advantage of trading using opposite Gmo Global and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gmo Global position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Gmo Global vs. Franklin Mutual Global | Gmo Global vs. T Rowe Price | Gmo Global vs. HUMANA INC | Gmo Global vs. Aquagold International |
| Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Vanguard Small Cap Index | Small Cap vs. Fidelity Small Cap |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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