Correlation Between Multifactor Equity and Gmo High

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

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

Diversification Opportunities for Multifactor Equity and Gmo High

0.67

Correlation Coefficient

Multifactor Equity  Gmo High

Poor diversification

The 3 months correlation between Multifactor and Gmo is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Multifactor Equity Fund 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 Multifactor Equity 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 Multifactor Equity Fund 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 Multifactor Equity i.e., Multifactor Equity and Gmo High go up and down completely randomly.

Pair Corralation between Multifactor Equity and Gmo High

Assuming the 90 days horizon Multifactor Equity Fund is expected to generate 3.9 times more return on investment than Gmo High. However, Multifactor Equity is 3.9 times more volatile than Gmo High Yield. It trades about 0.18 of its potential returns per unit of risk. Gmo High Yield is currently generating about 0.28 per unit of risk. If you would invest  1,530  in Multifactor Equity Fund on May 10, 2025 and sell it today you would earn a total of  118.00  from holding Multifactor Equity Fund or generate 7.71% return on investment over 90 days.

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

Multifactor Equity Fund  vs.  Gmo High Yield

Multifactor Equity

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Multifactor Equity Fund are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Multifactor Equity may actually be approaching a critical reversion point that can send shares even higher in September 2025.

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 21 (%) 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 Multifactor Equity and Gmo High

The main advantage of trading using opposite Multifactor Equity and Gmo High positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Multifactor Equity 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 Multifactor Equity Fund 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.