Correlation Between Schwab Government and Gmo Asset

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

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

Diversification Opportunities for Schwab Government and Gmo Asset

-0.87

Correlation Coefficient

Schwab Government  Gmo Asset

Pay attention - limited upside

The 3 months correlation between Schwab and Gmo is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Government Money and Gmo Asset Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Asset Allocation and Schwab Government 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 Schwab Government Money are associated (or correlated) with Gmo Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Asset Allocation has no effect on the direction of Schwab Government i.e., Schwab Government and Gmo Asset go up and down completely randomly.

Pair Corralation between Schwab Government and Gmo Asset

Assuming the 90 days horizon Schwab Government Money is expected to generate 0.13 times more return on investment than Gmo Asset. However, Schwab Government Money is 7.5 times less risky than Gmo Asset. It trades about 0.13 of its potential returns per unit of risk. Gmo Asset Allocation is currently generating about -0.19 per unit of risk. If you would invest  99.00  in Schwab Government Money on September 13, 2024 and sell it today you would earn a total of  1.00  from holding Schwab Government Money or generate 1.01% return on investment over 90 days.

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

Schwab Government Money  vs.  Gmo Asset Allocation

Schwab Government Money

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Government Money are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Schwab Government is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gmo Asset Allocation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Schwab Government and Gmo Asset

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

The idea behind Schwab Government Money and Gmo Asset Allocation 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.