Correlation Between Gmo Core and Rational Dynamic

Can any of the company-specific risk be diversified away by investing in both Gmo Core and Rational Dynamic 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 Core and Rational Dynamic 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 Rational Dynamic Momentum, you can compare the effects of market volatilities on Gmo Core and Rational Dynamic 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 Core with a short position of Rational Dynamic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Core and Rational Dynamic.

Diversification Opportunities for Gmo Core and Rational Dynamic

-0.43

Correlation Coefficient

Gmo Core  Rational Dynamic

Very good diversification

The 3 months correlation between Gmo and Rational is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Gmo E Plus and Rational Dynamic Momentum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rational Dynamic Momentum and Gmo Core 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 Rational Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rational Dynamic Momentum has no effect on the direction of Gmo Core i.e., Gmo Core and Rational Dynamic go up and down completely randomly.

Pair Corralation between Gmo Core and Rational Dynamic

Assuming the 90 days horizon Gmo E Plus is expected to generate 0.29 times more return on investment than Rational Dynamic. However, Gmo E Plus is 3.51 times less risky than Rational Dynamic. It trades about 0.07 of its potential returns per unit of risk. Rational Dynamic Momentum is currently generating about -0.15 per unit of risk. If you would invest  1,680  in Gmo E Plus on January 13, 2025 and sell it today you would earn a total of  27.00  from holding Gmo E Plus or generate 1.61% return on investment over 90 days.

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

Gmo E Plus  vs.  Rational Dynamic Momentum

Gmo E Plus

Risk-Adjusted Performance

Modest

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

Rational Dynamic Momentum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Rational Dynamic Momentum has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's 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 Gmo Core and Rational Dynamic

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

The idea behind Gmo E Plus and Rational Dynamic Momentum 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.