Correlation Between GOME Retail and Genuine Parts

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

By analyzing existing cross correlation between GOME Retail Holdings and Genuine Parts, you can compare the effects of market volatilities on GOME Retail and Genuine Parts 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 GOME Retail with a short position of Genuine Parts. Check out your portfolio center. Please also check ongoing floating volatility patterns of GOME Retail and Genuine Parts.

Diversification Opportunities for GOME Retail and Genuine Parts

0.0

Correlation Coefficient

GOME Retail  Genuine Parts

Pay attention - limited upside

The 3 months correlation between GOME and Genuine is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding GOME Retail Holdings and Genuine Parts in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genuine Parts and GOME Retail 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 GOME Retail Holdings are associated (or correlated) with Genuine Parts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genuine Parts has no effect on the direction of GOME Retail i.e., GOME Retail and Genuine Parts go up and down completely randomly.

Pair Corralation between GOME Retail and Genuine Parts

Assuming the 90 days trading horizon GOME Retail Holdings is expected to generate 7.15 times more return on investment than Genuine Parts. However, GOME Retail is 7.15 times more volatile than Genuine Parts. It trades about 0.02 of its potential returns per unit of risk. Genuine Parts is currently generating about -0.03 per unit of risk. If you would invest  1.00  in GOME Retail Holdings on September 23, 2024 and sell it today you would lose (0.90) from holding GOME Retail Holdings or give up 90.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

GOME Retail Holdings  vs.  Genuine Parts

GOME Retail Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GOME Retail Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, GOME Retail unveiled solid returns over the last few months and may actually be approaching a breakup point.

Genuine Parts

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Genuine Parts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with GOME Retail and Genuine Parts

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

The idea behind GOME Retail Holdings and Genuine Parts 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.

Check out your portfolio center.

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.