Correlation Between Douglas Emmett and GMS

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

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

Diversification Opportunities for Douglas Emmett and GMS

0.29

Correlation Coefficient

Douglas Emmett  GMS

Modest diversification

The 3 months correlation between Douglas and GMS is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Douglas Emmett and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc and Douglas Emmett 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 Douglas Emmett 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 Douglas Emmett i.e., Douglas Emmett and GMS go up and down completely randomly.

Pair Corralation between Douglas Emmett and GMS

Considering the 90-day investment horizon Douglas Emmett is expected to generate 2.43 times more return on investment than GMS. However, Douglas Emmett is 2.43 times more volatile than GMS Inc. It trades about -0.21 of its potential returns per unit of risk. GMS Inc is currently generating about -0.82 per unit of risk. If you would invest  1,969  in Douglas Emmett on October 10, 2024 and sell it today you would lose (227.00) from holding Douglas Emmett or give up 11.53% of portfolio value over 90 days.

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

Douglas Emmett  vs.  GMS Inc

Douglas Emmett

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Douglas Emmett are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Douglas Emmett is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

GMS Inc

Risk-Adjusted Performance

0 of 100

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 Douglas Emmett and GMS

The main advantage of trading using opposite Douglas Emmett and GMS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Douglas Emmett 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 Douglas Emmett 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.