Correlation Between GP Investments and Paycom Software

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

By analyzing existing cross correlation between GP Investments and Paycom Software, you can compare the effects of market volatilities on GP Investments and Paycom Software 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 GP Investments with a short position of Paycom Software. Check out your portfolio center. Please also check ongoing floating volatility patterns of GP Investments and Paycom Software.

Diversification Opportunities for GP Investments and Paycom Software

-0.27

Correlation Coefficient

GP Investments  Paycom Software

Very good diversification

The 3 months correlation between GPIV33 and Paycom is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding GP Investments and Paycom Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paycom Software and GP Investments 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 GP Investments are associated (or correlated) with Paycom Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paycom Software has no effect on the direction of GP Investments i.e., GP Investments and Paycom Software go up and down completely randomly.

Pair Corralation between GP Investments and Paycom Software

Assuming the 90 days trading horizon GP Investments is expected to under-perform the Paycom Software. But the stock apears to be less risky and, when comparing its historical volatility, GP Investments is 1.03 times less risky than Paycom Software. The stock trades about -0.01 of its potential returns per unit of risk. The Paycom Software is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,026  in Paycom Software on September 3, 2024 and sell it today you would earn a total of  1,571  from holding Paycom Software or generate 51.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

GP Investments  vs.  Paycom Software

GP Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GP Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, GP Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Paycom Software

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Paycom Software are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Paycom Software sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GP Investments and Paycom Software

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

The idea behind GP Investments and Paycom Software 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.