Correlation Between GMS and 78454LAP5

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Can any of the company-specific risk be diversified away by investing in both GMS and 78454LAP5 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 78454LAP5 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GMS Inc and SM ENERGY 6625, you can compare the effects of market volatilities on GMS and 78454LAP5 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 78454LAP5. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMS and 78454LAP5.

Diversification Opportunities for GMS and 78454LAP5

0.26
  Correlation Coefficient
 GMS

Modest diversification

The 3 months correlation between GMS and 78454LAP5 is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and SM ENERGY 6625 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM ENERGY 6625 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 78454LAP5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM ENERGY 6625 has no effect on the direction of GMS i.e., GMS and 78454LAP5 go up and down completely randomly.

Pair Corralation between GMS and 78454LAP5

Considering the 90-day investment horizon GMS Inc is expected to generate 4.4 times more return on investment than 78454LAP5. However, GMS is 4.4 times more volatile than SM ENERGY 6625. It trades about 0.05 of its potential returns per unit of risk. SM ENERGY 6625 is currently generating about 0.02 per unit of risk. If you would invest  5,190  in GMS Inc on December 4, 2024 and sell it today you would earn a total of  2,629  from holding GMS Inc or generate 50.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy97.98%
ValuesDaily Returns

GMS Inc  vs.  SM ENERGY 6625

 Performance 
       Timeline  
GMS Inc 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days GMS Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
SM ENERGY 6625 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days SM ENERGY 6625 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 78454LAP5 is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

GMS and 78454LAP5 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with GMS and 78454LAP5

The main advantage of trading using opposite GMS and 78454LAP5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMS position performs unexpectedly, 78454LAP5 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 78454LAP5 will offset losses from the drop in 78454LAP5's long position.
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The idea behind GMS Inc and SM ENERGY 6625 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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