Correlation Between Gmo High and Tax Exempt

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

Diversification Opportunities for Gmo High and Tax Exempt

0.52

Correlation Coefficient

Gmo High  Tax Exempt

Very weak diversification

The 3 months correlation between Gmo and Tax is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Tax Exempt Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tax Exempt Bond 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 Tax Exempt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tax Exempt Bond has no effect on the direction of Gmo High i.e., Gmo High and Tax Exempt go up and down completely randomly.

Pair Corralation between Gmo High and Tax Exempt

Assuming the 90 days horizon Gmo High is expected to generate 1.68 times less return on investment than Tax Exempt. In addition to that, Gmo High is 1.59 times more volatile than Tax Exempt Bond. It trades about 0.2 of its total potential returns per unit of risk. Tax Exempt Bond is currently generating about 0.52 per unit of volatility. If you would invest  1,246  in Tax Exempt Bond on September 12, 2024 and sell it today you would earn a total of  14.00  from holding Tax Exempt Bond or generate 1.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Gmo High Yield  vs.  Tax Exempt Bond

Gmo High Yield

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo High Yield are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Gmo High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Tax Exempt Bond

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tax Exempt Bond are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Tax Exempt is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Gmo High and Tax Exempt

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

The idea behind Gmo High Yield and Tax Exempt Bond 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.