Correlation Between GMS and CBOE SP

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

By analyzing existing cross correlation between GMS Inc and CBOE SP 500, you can compare the effects of market volatilities on GMS and CBOE SP 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 GMS with a short position of CBOE SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMS and CBOE SP.

Diversification Opportunities for GMS and CBOE SP

0.76

Correlation Coefficient

GMS  CBOE SP

Poor diversification

The 3 months correlation between GMS and CBOE is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and CBOE SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CBOE SP 500 and GMS 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 GMS Inc are associated (or correlated) with CBOE SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CBOE SP 500 has no effect on the direction of GMS i.e., GMS and CBOE SP go up and down completely randomly.

Pair Corralation between GMS and CBOE SP

Considering the 90-day investment horizon GMS is expected to generate 6.21 times less return on investment than CBOE SP. In addition to that, GMS is 3.45 times more volatile than CBOE SP 500. It trades about 0.01 of its total potential returns per unit of risk. CBOE SP 500 is currently generating about 0.23 per unit of volatility. If you would invest  441,156  in CBOE SP 500 on September 18, 2024 and sell it today you would earn a total of  33,827  from holding CBOE SP 500 or generate 7.67% return on investment over 90 days.

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

GMS Inc  vs.  CBOE SP 500

Pair Trading with GMS and CBOE SP

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

The idea behind GMS Inc and CBOE SP 500 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.