Correlation Between Armstrong World and GMS

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

By analyzing existing cross correlation between Armstrong World Industries and GMS Inc, you can compare the effects of market volatilities on Armstrong World 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 Armstrong World with a short position of GMS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Armstrong World and GMS.

Diversification Opportunities for Armstrong World and GMS

0.39

Correlation Coefficient

Armstrong World  GMS

Weak diversification

The 3 months correlation between Armstrong and GMS is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Armstrong World Industries and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc and Armstrong World 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 Armstrong World Industries 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 Armstrong World i.e., Armstrong World and GMS go up and down completely randomly.

Pair Corralation between Armstrong World and GMS

Considering the 90-day investment horizon Armstrong World Industries is expected to generate 0.9 times more return on investment than GMS. However, Armstrong World Industries is 1.11 times less risky than GMS. It trades about 0.03 of its potential returns per unit of risk. GMS Inc is currently generating about -0.1 per unit of risk. If you would invest  14,162  in Armstrong World Industries on December 28, 2024 and sell it today you would earn a total of  265.00  from holding Armstrong World Industries or generate 1.87% return on investment over 90 days.

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

Armstrong World Industries  vs.  GMS Inc

Armstrong World Indu

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Armstrong World Industries are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Armstrong World is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

GMS Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days GMS Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Armstrong World and GMS

The main advantage of trading using opposite Armstrong World and GMS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Armstrong World 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.

The idea behind Armstrong World Industries and GMS Inc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.