Correlation Between Gulf Island and Southern Michigan

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

By analyzing existing cross correlation between Gulf Island Fabrication and Southern Michigan Bancorp, you can compare the effects of market volatilities on Gulf Island and Southern Michigan 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 Gulf Island with a short position of Southern Michigan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gulf Island and Southern Michigan.

Diversification Opportunities for Gulf Island and Southern Michigan

0.91

Correlation Coefficient

Gulf Island  Southern Michigan

Almost no diversification

The 3 months correlation between Gulf and Southern is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Gulf Island Fabrication and Southern Michigan Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Michigan Bancorp and Gulf Island 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 Gulf Island Fabrication are associated (or correlated) with Southern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Michigan Bancorp has no effect on the direction of Gulf Island i.e., Gulf Island and Southern Michigan go up and down completely randomly.

Pair Corralation between Gulf Island and Southern Michigan

Given the investment horizon of 90 days Gulf Island Fabrication is expected to generate 2.12 times more return on investment than Southern Michigan. However, Gulf Island is 2.12 times more volatile than Southern Michigan Bancorp. It trades about 0.09 of its potential returns per unit of risk. Southern Michigan Bancorp is currently generating about 0.04 per unit of risk. If you would invest  325.00  in Gulf Island Fabrication on September 26, 2024 and sell it today you would earn a total of  371.00  from holding Gulf Island Fabrication or generate 114.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	86.5%
Values	Daily Returns

Gulf Island Fabrication  vs.  Southern Michigan Bancorp

Gulf Island Fabrication

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gulf Island Fabrication are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Gulf Island demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Southern Michigan Bancorp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Michigan Bancorp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal primary indicators, Southern Michigan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Gulf Island and Southern Michigan

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

The idea behind Gulf Island Fabrication and Southern Michigan Bancorp 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.