Correlation Between Gmo High and Transamerica Large

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Can any of the company-specific risk be diversified away by investing in both Gmo High and Transamerica Large 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 Transamerica Large 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 Transamerica Large Cap, you can compare the effects of market volatilities on Gmo High and Transamerica Large 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 Transamerica Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo High and Transamerica Large.

Diversification Opportunities for Gmo High and Transamerica Large

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between Gmo and Transamerica is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Transamerica Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transamerica Large Cap 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 Transamerica Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transamerica Large Cap has no effect on the direction of Gmo High i.e., Gmo High and Transamerica Large go up and down completely randomly.

Pair Corralation between Gmo High and Transamerica Large

Assuming the 90 days horizon Gmo High Yield is expected to generate 0.4 times more return on investment than Transamerica Large. However, Gmo High Yield is 2.48 times less risky than Transamerica Large. It trades about 0.17 of its potential returns per unit of risk. Transamerica Large Cap is currently generating about -0.23 per unit of risk. If you would invest  1,801  in Gmo High Yield on September 12, 2024 and sell it today you would earn a total of  11.00  from holding Gmo High Yield or generate 0.61% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

Gmo High Yield  vs.  Transamerica Large Cap

 Performance 
       Timeline  
Gmo High Yield 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Gmo High Yield are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gmo High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Transamerica Large Cap 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Transamerica Large Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Transamerica Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gmo High and Transamerica Large Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Gmo High and Transamerica Large

The main advantage of trading using opposite Gmo High and Transamerica Large positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gmo High position performs unexpectedly, Transamerica Large 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 Transamerica Large will offset losses from the drop in Transamerica Large's long position.
The idea behind Gmo High Yield and Transamerica Large Cap 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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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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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