Correlation Between GMS and Semtech

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

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

Diversification Opportunities for GMS and Semtech

0.66

Correlation Coefficient

GMS  Semtech

Poor diversification

The 3 months correlation between GMS and Semtech is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Semtech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Semtech 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 Semtech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Semtech has no effect on the direction of GMS i.e., GMS and Semtech go up and down completely randomly.

Pair Corralation between GMS and Semtech

Considering the 90-day investment horizon GMS is expected to generate 9.38 times less return on investment than Semtech. But when comparing it to its historical volatility, GMS Inc is 1.93 times less risky than Semtech. It trades about 0.03 of its potential returns per unit of risk. Semtech is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,953  in Semtech on September 12, 2024 and sell it today you would earn a total of  3,337  from holding Semtech or generate 113.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.2%
Values	Daily Returns

GMS Inc  vs.  Semtech

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 unveiled solid returns over the last few months and may actually be approaching a breakup point.

Semtech

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Semtech are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Semtech exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMS and Semtech

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

The idea behind GMS Inc and Semtech 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 CEOs Directory module to screen CEOs from public companies around the world.