Correlation Between Gmo E and Gmo Quality

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

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

Diversification Opportunities for Gmo E and Gmo Quality

0.57

Correlation Coefficient

Gmo E  Gmo Quality

Very weak diversification

The 3 months correlation between Gmo and Gmo is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Gmo E Plus and Gmo Quality Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Quality Fund and Gmo E 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 E Plus are associated (or correlated) with Gmo Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Quality Fund has no effect on the direction of Gmo E i.e., Gmo E and Gmo Quality go up and down completely randomly.

Pair Corralation between Gmo E and Gmo Quality

Assuming the 90 days horizon Gmo E Plus is expected to under-perform the Gmo Quality. But the mutual fund apears to be less risky and, when comparing its historical volatility, Gmo E Plus is 1.32 times less risky than Gmo Quality. The mutual fund trades about -0.18 of its potential returns per unit of risk. The Gmo Quality Fund is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  3,458  in Gmo Quality Fund on September 21, 2024 and sell it today you would lose (192.00) from holding Gmo Quality Fund or give up 5.55% of portfolio value over 90 days.

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

Gmo E Plus  vs.  Gmo Quality Fund

Gmo E Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo E Plus has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Gmo Quality Fund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gmo Quality Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Gmo Quality 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 E and Gmo Quality

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

The idea behind Gmo E Plus and Gmo Quality Fund 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.