Correlation Between Gmo High and Short Duration

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

Diversification Opportunities for Gmo High and Short Duration

0.96

Correlation Coefficient

Gmo High  Short Duration

Almost no diversification

The 3 months correlation between Gmo and Short is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Gmo High Yield and Short Duration Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Short Duration Municipal 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 Short Duration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Short Duration Municipal has no effect on the direction of Gmo High i.e., Gmo High and Short Duration go up and down completely randomly.

Pair Corralation between Gmo High and Short Duration

Assuming the 90 days horizon Gmo High Yield is expected to generate 2.21 times more return on investment than Short Duration. However, Gmo High is 2.21 times more volatile than Short Duration Municipal. It trades about 0.28 of its potential returns per unit of risk. Short Duration Municipal is currently generating about 0.34 per unit of risk. If you would invest  1,716  in Gmo High Yield on May 10, 2025 and sell it today you would earn a total of  51.00  from holding Gmo High Yield or generate 2.97% return on investment over 90 days.

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

Gmo High Yield  vs.  Short Duration Municipal

Gmo High Yield

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo High Yield are ranked lower than 22 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Gmo High is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Short Duration Municipal

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Short Duration Municipal are ranked lower than 26 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Short Duration 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 High and Short Duration

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

The idea behind Gmo High Yield and Short Duration Municipal 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.