Correlation Between GMS and Graham

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Can any of the company-specific risk be diversified away by investing in both GMS and Graham 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 Graham into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GMS Inc and Graham Holdings 575, you can compare the effects of market volatilities on GMS and Graham 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 Graham. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMS and Graham.

Diversification Opportunities for GMS and Graham

-0.17
  Correlation Coefficient
 GMS

Good diversification

The 3 months correlation between GMS and Graham is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Graham Holdings 575 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graham Holdings 575 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 Graham. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Graham Holdings 575 has no effect on the direction of GMS i.e., GMS and Graham go up and down completely randomly.

Pair Corralation between GMS and Graham

Considering the 90-day investment horizon GMS Inc is expected to generate 9.65 times more return on investment than Graham. However, GMS is 9.65 times more volatile than Graham Holdings 575. It trades about 0.25 of its potential returns per unit of risk. Graham Holdings 575 is currently generating about -0.21 per unit of risk. If you would invest  9,094  in GMS Inc on September 2, 2024 and sell it today you would earn a total of  941.00  from holding GMS Inc or generate 10.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy52.38%
ValuesDaily Returns

GMS Inc  vs.  Graham Holdings 575

 Performance 
       Timeline  
GMS Inc 

Risk-Adjusted Performance

14 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in GMS Inc are ranked lower than 14 (%) 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.
Graham Holdings 575 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Graham Holdings 575 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Graham is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

GMS and Graham Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GMS and Graham

The main advantage of trading using opposite GMS and Graham positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMS position performs unexpectedly, Graham 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 Graham will offset losses from the drop in Graham's long position.
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The idea behind GMS Inc and Graham Holdings 575 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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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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.

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