Correlation Between Gmo Equity and Pear Tree

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

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

Diversification Opportunities for Gmo Equity and Pear Tree

0.75

Correlation Coefficient

Gmo Equity  Pear Tree

Poor diversification

The 3 months correlation between Gmo and Pear is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Gmo Equity Allocation and Pear Tree Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pear Tree Quality and Gmo Equity 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 Equity Allocation are associated (or correlated) with Pear Tree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pear Tree Quality has no effect on the direction of Gmo Equity i.e., Gmo Equity and Pear Tree go up and down completely randomly.

Pair Corralation between Gmo Equity and Pear Tree

Assuming the 90 days horizon Gmo Equity Allocation is expected to generate 1.16 times more return on investment than Pear Tree. However, Gmo Equity is 1.16 times more volatile than Pear Tree Quality. It trades about 0.17 of its potential returns per unit of risk. Pear Tree Quality is currently generating about 0.07 per unit of risk. If you would invest  1,366  in Gmo Equity Allocation on September 2, 2024 and sell it today you would earn a total of  121.00  from holding Gmo Equity Allocation or generate 8.86% return on investment over 90 days.

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

Gmo Equity Allocation  vs.  Pear Tree Quality

Gmo Equity Allocation

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo Equity Allocation are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Gmo Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pear Tree Quality

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pear Tree Quality are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Pear Tree 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 Equity and Pear Tree

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

The idea behind Gmo Equity Allocation and Pear Tree Quality 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.