Correlation Between GMS and Chesapeake Energy

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

By analyzing existing cross correlation between GMS Inc and Chesapeake Energy, you can compare the effects of market volatilities on GMS and Chesapeake Energy 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 Chesapeake Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMS and Chesapeake Energy.

Diversification Opportunities for GMS and Chesapeake Energy

-0.68

Correlation Coefficient

GMS  Chesapeake Energy

Excellent diversification

The 3 months correlation between GMS and Chesapeake is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Chesapeake Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Energy 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 Chesapeake Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Energy has no effect on the direction of GMS i.e., GMS and Chesapeake Energy go up and down completely randomly.

Pair Corralation between GMS and Chesapeake Energy

Considering the 90-day investment horizon GMS is expected to generate 20.64 times less return on investment than Chesapeake Energy. But when comparing it to its historical volatility, GMS Inc is 1.5 times less risky than Chesapeake Energy. It trades about 0.03 of its potential returns per unit of risk. Chesapeake Energy is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  5,684  in Chesapeake Energy on September 16, 2024 and sell it today you would earn a total of  720.00  from holding Chesapeake Energy or generate 12.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	20.0%
Values	Daily Returns

GMS Inc  vs.  Chesapeake Energy

GMS Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GMS Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable primary indicators, GMS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Chesapeake Energy

Risk-Adjusted Performance

0 of 100

Strong

Over the last 90 days Chesapeake Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak technical and fundamental indicators, Chesapeake Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMS and Chesapeake Energy

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

The idea behind GMS Inc and Chesapeake Energy 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.