Correlation Between Allied Industrial and GCS Holdings

Can any of the company-specific risk be diversified away by investing in both Allied Industrial and GCS Holdings 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 Allied Industrial and GCS Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Allied Industrial and GCS Holdings, you can compare the effects of market volatilities on Allied Industrial and GCS Holdings 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 Allied Industrial with a short position of GCS Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Allied Industrial and GCS Holdings.

Diversification Opportunities for Allied Industrial and GCS Holdings

-0.76

Correlation Coefficient

Allied Industrial  GCS Holdings

Pay attention - limited upside

The 3 months correlation between Allied and GCS is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Allied Industrial and GCS Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GCS Holdings and Allied Industrial 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 Allied Industrial are associated (or correlated) with GCS Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GCS Holdings has no effect on the direction of Allied Industrial i.e., Allied Industrial and GCS Holdings go up and down completely randomly.

Pair Corralation between Allied Industrial and GCS Holdings

Assuming the 90 days trading horizon Allied Industrial is expected to under-perform the GCS Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Allied Industrial is 6.57 times less risky than GCS Holdings. The stock trades about -0.06 of its potential returns per unit of risk. The GCS Holdings is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  3,950  in GCS Holdings on September 15, 2024 and sell it today you would earn a total of  5,350  from holding GCS Holdings or generate 135.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Allied Industrial  vs.  GCS Holdings

Allied Industrial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Allied Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Allied Industrial is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

GCS Holdings

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GCS Holdings are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, GCS Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Allied Industrial and GCS Holdings

The main advantage of trading using opposite Allied Industrial and GCS Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allied Industrial position performs unexpectedly, GCS Holdings 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 GCS Holdings will offset losses from the drop in GCS Holdings' long position.

The idea behind Allied Industrial and GCS Holdings 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.