Correlation Between Mid-cap Value and Gmo High

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

By analyzing existing cross correlation between Mid Cap Value Profund and Gmo High Yield, you can compare the effects of market volatilities on Mid-cap Value and Gmo High 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 Mid-cap Value with a short position of Gmo High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mid-cap Value and Gmo High.

Diversification Opportunities for Mid-cap Value and Gmo High

0.82

Correlation Coefficient

Mid-cap Value  Gmo High

Very poor diversification

The 3 months correlation between Mid-cap and GMO is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Mid Cap Value Profund and Gmo High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo High Yield and Mid-cap Value 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 Mid Cap Value Profund are associated (or correlated) with Gmo High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo High Yield has no effect on the direction of Mid-cap Value i.e., Mid-cap Value and Gmo High go up and down completely randomly.

Pair Corralation between Mid-cap Value and Gmo High

Assuming the 90 days horizon Mid-cap Value is expected to generate 1.01 times less return on investment than Gmo High. In addition to that, Mid-cap Value is 6.08 times more volatile than Gmo High Yield. It trades about 0.05 of its total potential returns per unit of risk. Gmo High Yield is currently generating about 0.29 per unit of volatility. If you would invest  1,720  in Gmo High Yield on May 16, 2025 and sell it today you would earn a total of  49.00  from holding Gmo High Yield or generate 2.85% return on investment over 90 days.

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

Mid Cap Value Profund  vs.  Gmo High Yield

Mid Cap Value

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Cap Value Profund are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Mid-cap Value is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Mid-cap Value and Gmo High

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

The idea behind Mid Cap Value Profund and Gmo High Yield 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.