Correlation Between Azek and GMS

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

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

Diversification Opportunities for Azek and GMS

0.89

Correlation Coefficient

Azek  GMS

Very poor diversification

The 3 months correlation between Azek and GMS is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Azek Company and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc and Azek 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 Azek Company 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 Azek i.e., Azek and GMS go up and down completely randomly.

Pair Corralation between Azek and GMS

Given the investment horizon of 90 days Azek Company is expected to generate 1.75 times more return on investment than GMS. However, Azek is 1.75 times more volatile than GMS Inc. It trades about 0.01 of its potential returns per unit of risk. GMS Inc is currently generating about -0.11 per unit of risk. If you would invest  4,929  in Azek Company on December 26, 2024 and sell it today you would lose (46.00) from holding Azek Company or give up 0.93% of portfolio value over 90 days.

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

Azek Company  vs.  GMS Inc

Azek Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days Azek Company has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Azek is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

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 Azek and GMS

The main advantage of trading using opposite Azek and GMS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azek 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 Azek Company 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.