Correlation Between Gmo Quality and Rational Defensive

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

By analyzing existing cross correlation between Gmo Quality Fund and Rational Defensive Growth, you can compare the effects of market volatilities on Gmo Quality and Rational Defensive 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 Quality with a short position of Rational Defensive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gmo Quality and Rational Defensive.

Diversification Opportunities for Gmo Quality and Rational Defensive

0.96

Correlation Coefficient

Gmo Quality  Rational Defensive

Almost no diversification

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

Pair Corralation between Gmo Quality and Rational Defensive

Assuming the 90 days horizon Gmo Quality Fund is expected to generate 0.93 times more return on investment than Rational Defensive. However, Gmo Quality Fund is 1.07 times less risky than Rational Defensive. It trades about 0.1 of its potential returns per unit of risk. Rational Defensive Growth is currently generating about 0.09 per unit of risk. If you would invest  3,189  in Gmo Quality Fund on May 5, 2025 and sell it today you would earn a total of  137.00  from holding Gmo Quality Fund or generate 4.3% return on investment over 90 days.

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

Gmo Quality Fund  vs.  Rational Defensive Growth

Gmo Quality Fund

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo Quality Fund are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Gmo Quality is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Rational Defensive Growth

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rational Defensive Growth are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Rational Defensive 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 Quality and Rational Defensive

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

The idea behind Gmo Quality Fund and Rational Defensive Growth 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.