Correlation Between GMS and Cars
Can any of the company-specific risk be diversified away by investing in both GMS and Cars 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 GMS and Cars into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GMS Inc and Cars Inc, you can compare the effects of market volatilities on GMS and Cars 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 GMS with a short position of Cars. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMS and Cars.
Diversification Opportunities for GMS and Cars
Poor diversification
The 3 months correlation between GMS and Cars is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and GMS 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 GMS Inc are associated (or correlated) with Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of GMS i.e., GMS and Cars go up and down completely randomly.
Pair Corralation between GMS and Cars
Considering the 90-day investment horizon GMS Inc is expected to under-perform the Cars. But the stock apears to be less risky and, when comparing its historical volatility, GMS Inc is 1.35 times less risky than Cars. The stock trades about -0.02 of its potential returns per unit of risk. The Cars Inc is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 1,681 in Cars Inc on September 7, 2024 and sell it today you would earn a total of 252.00 from holding Cars Inc or generate 14.99% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
GMS Inc vs. Cars Inc
Performance |
Timeline |
GMS Inc |
Cars Inc |
GMS and Cars Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with GMS and Cars
The main advantage of trading using opposite GMS and Cars positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMS position performs unexpectedly, Cars 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 Cars will offset losses from the drop in Cars' long position.GMS vs. Quanex Building Products | GMS vs. Apogee Enterprises | GMS vs. Azek Company | GMS vs. Beacon Roofing Supply |
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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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