Correlation Between Gmo International and Gmo Core
Can any of the company-specific risk be diversified away by investing in both Gmo International and Gmo Core 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 International and Gmo Core into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gmo International Opportunistic and Gmo E Plus, you can compare the effects of market volatilities on Gmo International and Gmo Core 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 International with a short position of Gmo Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo International and Gmo Core.
Diversification Opportunities for Gmo International and Gmo Core
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Gmo and Gmo is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Gmo International Opportunisti and Gmo E Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo E Plus and Gmo International 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 International Opportunistic are associated (or correlated) with Gmo Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo E Plus has no effect on the direction of Gmo International i.e., Gmo International and Gmo Core go up and down completely randomly.
Pair Corralation between Gmo International and Gmo Core
Assuming the 90 days horizon Gmo International Opportunistic is expected to generate 1.96 times more return on investment than Gmo Core. However, Gmo International is 1.96 times more volatile than Gmo E Plus. It trades about 0.06 of its potential returns per unit of risk. Gmo E Plus is currently generating about 0.06 per unit of risk. If you would invest 1,321 in Gmo International Opportunistic on August 29, 2024 and sell it today you would earn a total of 179.00 from holding Gmo International Opportunistic or generate 13.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.19% |
| Values | Daily Returns |
Gmo International Opportunisti vs. Gmo E Plus
Performance |
| Timeline |
| Gmo International |
| Gmo E Plus |
Gmo International and Gmo Core Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gmo International and Gmo Core
The main advantage of trading using opposite Gmo International and Gmo Core positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gmo International position performs unexpectedly, Gmo Core 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 Core will offset losses from the drop in Gmo Core's long position.The idea behind Gmo International Opportunistic and Gmo E Plus 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 Stocks Directory module to find actively traded stocks across global markets.
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