Correlation Between GMS and Grocery Outlet

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

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

Diversification Opportunities for GMS and Grocery Outlet

0.7

Correlation Coefficient

GMS  Grocery Outlet

Poor diversification

The 3 months correlation between GMS and Grocery is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Grocery Outlet Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grocery Outlet Holding 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 Grocery Outlet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grocery Outlet Holding has no effect on the direction of GMS i.e., GMS and Grocery Outlet go up and down completely randomly.

Pair Corralation between GMS and Grocery Outlet

Considering the 90-day investment horizon GMS Inc is expected to under-perform the Grocery Outlet. But the stock apears to be less risky and, when comparing its historical volatility, GMS Inc is 1.73 times less risky than Grocery Outlet. The stock trades about -0.21 of its potential returns per unit of risk. The Grocery Outlet Holding is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,877  in Grocery Outlet Holding on September 12, 2024 and sell it today you would earn a total of  82.00  from holding Grocery Outlet Holding or generate 4.37% 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.  Grocery Outlet Holding

GMS Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GMS Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, GMS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Grocery Outlet Holding

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Grocery Outlet Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Grocery Outlet displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMS and Grocery Outlet

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

The idea behind GMS Inc and Grocery Outlet Holding 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.