Correlation Between Gmo International and Gmo Emerging

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

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

Diversification Opportunities for Gmo International and Gmo Emerging

0.95

Correlation Coefficient

Gmo International  Gmo Emerging

Almost no diversification

The 3 months correlation between Gmo and Gmo is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Gmo International Equity and Gmo Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Emerging Markets and Gmo International 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 International Equity are associated (or correlated) with Gmo Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Emerging Markets has no effect on the direction of Gmo International i.e., Gmo International and Gmo Emerging go up and down completely randomly.

Pair Corralation between Gmo International and Gmo Emerging

Assuming the 90 days horizon Gmo International is expected to generate 1.03 times less return on investment than Gmo Emerging. But when comparing it to its historical volatility, Gmo International Equity is 1.09 times less risky than Gmo Emerging. It trades about 0.17 of its potential returns per unit of risk. Gmo Emerging Markets is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,357  in Gmo Emerging Markets on February 29, 2024 and sell it today you would earn a total of  165.00  from holding Gmo Emerging Markets or generate 7.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Gmo International Equity  vs.  Gmo Emerging Markets

Gmo International Equity

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo International Equity 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 International may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Gmo Emerging Markets

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo Emerging Markets are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak primary indicators, Gmo Emerging may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Gmo International and Gmo Emerging

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

The idea behind Gmo International Equity and Gmo Emerging Markets 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.