Correlation Between GMS and BBB Foods
Can any of the company-specific risk be diversified away by investing in both GMS and BBB Foods 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 BBB Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GMS Inc and BBB Foods, you can compare the effects of market volatilities on GMS and BBB Foods 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 BBB Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMS and BBB Foods.
Diversification Opportunities for GMS and BBB Foods
Poor diversification
The 3 months correlation between GMS and BBB is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods 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 BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of GMS i.e., GMS and BBB Foods go up and down completely randomly.
Pair Corralation between GMS and BBB Foods
Considering the 90-day investment horizon GMS Inc is expected to generate 1.1 times more return on investment than BBB Foods. However, GMS is 1.1 times more volatile than BBB Foods. It trades about 0.31 of its potential returns per unit of risk. BBB Foods is currently generating about 0.0 per unit of risk. If you would invest 9,203 in GMS Inc on August 27, 2024 and sell it today you would earn a total of 1,181 from holding GMS Inc or generate 12.83% 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. BBB Foods
Performance |
| Timeline |
| GMS Inc |
| BBB Foods |
GMS and BBB Foods Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GMS and BBB Foods
The main advantage of trading using opposite GMS and BBB Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMS position performs unexpectedly, BBB Foods 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 BBB Foods will offset losses from the drop in BBB Foods' long position.| GMS vs. Quanex Building Products | GMS vs. Apogee Enterprises | GMS vs. Azek Company | GMS vs. Beacon Roofing Supply |
| BBB Foods vs. Kaltura | BBB Foods vs. Analog Devices | BBB Foods vs. Sabra Healthcare REIT | BBB Foods vs. Amkor Technology |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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