Correlation Between Gmo High and Midcap Fund

Can any of the company-specific risk be diversified away by investing in both Gmo High and Midcap Fund 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 Midcap Fund 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 Midcap Fund R 6, you can compare the effects of market volatilities on Gmo High and Midcap Fund 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 Midcap Fund. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo High and Midcap Fund.

Diversification Opportunities for Gmo High and Midcap Fund

0.8

Correlation Coefficient

Gmo High  Midcap Fund

Very poor diversification

The 3 months correlation between Gmo and Midcap is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Midcap Fund R 6 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midcap Fund R 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 Midcap Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midcap Fund R has no effect on the direction of Gmo High i.e., Gmo High and Midcap Fund go up and down completely randomly.

Pair Corralation between Gmo High and Midcap Fund

Assuming the 90 days horizon Gmo High is expected to generate 4.83 times less return on investment than Midcap Fund. But when comparing it to its historical volatility, Gmo High Yield is 4.82 times less risky than Midcap Fund. It trades about 0.17 of its potential returns per unit of risk. Midcap Fund R 6 is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  4,419  in Midcap Fund R 6 on September 12, 2024 and sell it today you would earn a total of  409.00  from holding Midcap Fund R 6 or generate 9.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Gmo High Yield  vs.  Midcap Fund R 6

Gmo High Yield

Risk-Adjusted Performance

13 of 100

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.

Midcap Fund R

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Midcap Fund R 6 are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Midcap Fund may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Gmo High and Midcap Fund

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

The idea behind Gmo High Yield and Midcap Fund R 6 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.