Correlation Between Gmo High and Lgm Risk
Can any of the company-specific risk be diversified away by investing in both Gmo High and Lgm Risk 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 High and Lgm Risk into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Gmo High Yield and Lgm Risk Managed, you can compare the effects of market volatilities on Gmo High and Lgm Risk 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 High with a short position of Lgm Risk. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo High and Lgm Risk.
Diversification Opportunities for Gmo High and Lgm Risk
Poor diversification
The 3 months correlation between GMO and Lgm is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Lgm Risk Managed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lgm Risk Managed and Gmo High 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 High Yield are associated (or correlated) with Lgm Risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lgm Risk Managed has no effect on the direction of Gmo High i.e., Gmo High and Lgm Risk go up and down completely randomly.
Pair Corralation between Gmo High and Lgm Risk
Assuming the 90 days horizon Gmo High is expected to generate 1.65 times less return on investment than Lgm Risk. But when comparing it to its historical volatility, Gmo High Yield is 1.59 times less risky than Lgm Risk. It trades about 0.36 of its potential returns per unit of risk. Lgm Risk Managed is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 1,126 in Lgm Risk Managed on September 4, 2024 and sell it today you would earn a total of 25.00 from holding Lgm Risk Managed or generate 2.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Gmo High Yield vs. Lgm Risk Managed
Performance |
| Timeline |
| Gmo High Yield |
| Lgm Risk Managed |
Gmo High and Lgm Risk Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Gmo High and Lgm Risk
The main advantage of trading using opposite Gmo High and Lgm Risk positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gmo High position performs unexpectedly, Lgm Risk 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 Lgm Risk will offset losses from the drop in Lgm Risk's long position.| Gmo High vs. California High Yield Municipal | Gmo High vs. Siit High Yield | Gmo High vs. Pace High Yield |
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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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