Correlation Between Gotham Defensive and Gotham Enhanced

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

By analyzing existing cross correlation between Gotham Defensive Long and Gotham Enhanced Return, you can compare the effects of market volatilities on Gotham Defensive and Gotham Enhanced 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 Gotham Defensive with a short position of Gotham Enhanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gotham Defensive and Gotham Enhanced.

Diversification Opportunities for Gotham Defensive and Gotham Enhanced

0.92

Correlation Coefficient

Gotham Defensive  Gotham Enhanced

Almost no diversification

The 3 months correlation between Gotham and Gotham is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Gotham Defensive Long and Gotham Enhanced Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gotham Enhanced Return and Gotham Defensive 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 Gotham Defensive Long are associated (or correlated) with Gotham Enhanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gotham Enhanced Return has no effect on the direction of Gotham Defensive i.e., Gotham Defensive and Gotham Enhanced go up and down completely randomly.

Pair Corralation between Gotham Defensive and Gotham Enhanced

Assuming the 90 days horizon Gotham Defensive Long is expected to generate 0.69 times more return on investment than Gotham Enhanced. However, Gotham Defensive Long is 1.45 times less risky than Gotham Enhanced. It trades about -0.23 of its potential returns per unit of risk. Gotham Enhanced Return is currently generating about -0.18 per unit of risk. If you would invest  1,742  in Gotham Defensive Long on January 30, 2024 and sell it today you would lose (50.00) from holding Gotham Defensive Long or give up 2.87% of portfolio value over 90 days.

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

Gotham Defensive Long  vs.  Gotham Enhanced Return

Gotham Defensive Long

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gotham Defensive Long are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Gotham Defensive is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Gotham Enhanced Return

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gotham Enhanced Return are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Gotham Enhanced may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Gotham Defensive and Gotham Enhanced

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

The idea behind Gotham Defensive Long and Gotham Enhanced Return 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.