Correlation Between Adams Natural and Gmo Resources

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

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

Diversification Opportunities for Adams Natural and Gmo Resources

0.8

Correlation Coefficient

Adams Natural  Gmo Resources

Very poor diversification

The 3 months correlation between Adams and Gmo is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Adams Natural Resources and Gmo Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gmo Resources and Adams Natural 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 Adams Natural Resources are associated (or correlated) with Gmo Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gmo Resources has no effect on the direction of Adams Natural i.e., Adams Natural and Gmo Resources go up and down completely randomly.

Pair Corralation between Adams Natural and Gmo Resources

Considering the 90-day investment horizon Adams Natural Resources is expected to under-perform the Gmo Resources. But the fund apears to be less risky and, when comparing its historical volatility, Adams Natural Resources is 1.24 times less risky than Gmo Resources. The fund trades about -0.05 of its potential returns per unit of risk. The Gmo Resources is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  2,252  in Gmo Resources on March 9, 2024 and sell it today you would lose (42.00) from holding Gmo Resources or give up 1.87% of portfolio value over 90 days.

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

Adams Natural Resources  vs.  Gmo Resources

Adams Natural Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Natural Resources are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Gmo Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gmo Resources are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Gmo Resources may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Pair Trading with Adams Natural and Gmo Resources

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

The idea behind Adams Natural Resources and Gmo Resources 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.