Correlation Between Wendys and GMS
Can any of the company-specific risk be diversified away by investing in both Wendys and GMS 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 Wendys and GMS into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Wendys Co and GMS Inc, you can compare the effects of market volatilities on Wendys and GMS 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 Wendys with a short position of GMS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wendys and GMS.
Diversification Opportunities for Wendys and GMS
Very weak diversification
The 3 months correlation between Wendys and GMS is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc and Wendys 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 The Wendys Co are associated (or correlated) with GMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMS Inc has no effect on the direction of Wendys i.e., Wendys and GMS go up and down completely randomly.
Pair Corralation between Wendys and GMS
Considering the 90-day investment horizon Wendys is expected to generate 200.25 times less return on investment than GMS. But when comparing it to its historical volatility, The Wendys Co is 1.15 times less risky than GMS. It trades about 0.0 of its potential returns per unit of risk. GMS Inc is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 7,212 in GMS Inc on September 4, 2024 and sell it today you would earn a total of 3,056 from holding GMS Inc or generate 42.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Wendys Co vs. GMS Inc
Performance |
| Timeline |
| The Wendys |
| GMS Inc |
Wendys and GMS Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wendys and GMS
The main advantage of trading using opposite Wendys and GMS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendys position performs unexpectedly, GMS 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 GMS will offset losses from the drop in GMS's long position.| Wendys vs. Hyatt Hotels | Wendys vs. Smart Share Global | Wendys vs. Sweetgreen | Wendys vs. Wyndham Hotels Resorts |
| 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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