Correlation Between GMS and Sea
Can any of the company-specific risk be diversified away by investing in both GMS and Sea 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 Sea into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GMS Inc and Sea, you can compare the effects of market volatilities on GMS and Sea 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 Sea. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMS and Sea.
Diversification Opportunities for GMS and Sea
Poor diversification
The 3 months correlation between GMS and Sea is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of GMS i.e., GMS and Sea go up and down completely randomly.
Pair Corralation between GMS and Sea
Considering the 90-day investment horizon GMS is expected to generate 1.15 times less return on investment than Sea. But when comparing it to its historical volatility, GMS Inc is 1.79 times less risky than Sea. It trades about 0.09 of its potential returns per unit of risk. Sea is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 5,902 in Sea on August 24, 2024 and sell it today you would earn a total of 5,402 from holding Sea or generate 91.53% 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. Sea
Performance |
| Timeline |
| GMS Inc |
| Sea |
GMS and Sea Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GMS and Sea
The main advantage of trading using opposite GMS and Sea positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMS position performs unexpectedly, Sea 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 Sea will offset losses from the drop in Sea's 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.
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