Correlation Between CMT and GSC

Can any of the company-specific risk be diversified away by investing in both CMT and GSC 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 CMT and GSC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CMT and GSC, you can compare the effects of market volatilities on CMT and GSC 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 CMT with a short position of GSC. Check out your portfolio center. Please also check ongoing floating volatility patterns of CMT and GSC.

Diversification Opportunities for CMT and GSC

0.56

Correlation Coefficient

CMT  GSC

Very weak diversification

The 3 months correlation between CMT and GSC is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding CMT and GSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GSC and CMT 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 CMT are associated (or correlated) with GSC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GSC has no effect on the direction of CMT i.e., CMT and GSC go up and down completely randomly.

Pair Corralation between CMT and GSC

If you would invest  0.47  in CMT on August 30, 2024 and sell it today you would earn a total of  0.29  from holding CMT or generate 60.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.56%
Values	Daily Returns

CMT  vs.  GSC

CMT

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CMT are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, CMT exhibited solid returns over the last few months and may actually be approaching a breakup point.

GSC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GSC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, GSC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with CMT and GSC

The main advantage of trading using opposite CMT and GSC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CMT position performs unexpectedly, GSC 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 GSC will offset losses from the drop in GSC's long position.

The idea behind CMT and GSC 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.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.