Correlation Between Gmo International and Morningstar International

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

Diversification Opportunities for Gmo International and Morningstar International

0.96

Correlation Coefficient

Gmo International  Morningstar International

Almost no diversification

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

Pair Corralation between Gmo International and Morningstar International

Assuming the 90 days horizon Gmo International Equity is expected to generate 0.95 times more return on investment than Morningstar International. However, Gmo International Equity is 1.05 times less risky than Morningstar International. It trades about 0.07 of its potential returns per unit of risk. Morningstar International Equity is currently generating about 0.02 per unit of risk. If you would invest  2,812  in Gmo International Equity on January 17, 2025 and sell it today you would earn a total of  159.00  from holding Gmo International Equity or generate 5.65% return on investment over 90 days.

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

Gmo International Equity  vs.  Morningstar International Equi

Gmo International Equity

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo International Equity are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gmo International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Morningstar International

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar International Equity are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Morningstar International 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 International and Morningstar International

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

The idea behind Gmo International Equity and Morningstar International Equity 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.

Check out your portfolio center.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.