Correlation Between GMS and CF Industries

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

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

Diversification Opportunities for GMS and CF Industries

0.39

Correlation Coefficient

GMS  CF Industries

Weak diversification

The 3 months correlation between GMS and CF Industries is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and CF Industries Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CF Industries Holdings 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 CF Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CF Industries Holdings has no effect on the direction of GMS i.e., GMS and CF Industries go up and down completely randomly.

Pair Corralation between GMS and CF Industries

Considering the 90-day investment horizon GMS Inc is expected to under-perform the CF Industries. But the stock apears to be less risky and, when comparing its historical volatility, GMS Inc is 1.04 times less risky than CF Industries. The stock trades about -0.51 of its potential returns per unit of risk. The CF Industries Holdings is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  8,866  in CF Industries Holdings on September 28, 2024 and sell it today you would lose (391.00) from holding CF Industries Holdings or give up 4.41% of portfolio value over 90 days.

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

GMS Inc  vs.  CF Industries Holdings

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 comparatively stable primary indicators, GMS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

CF Industries Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CF Industries Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, CF Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GMS and CF Industries

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

The idea behind GMS Inc and CF Industries 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 Global Correlations module to find global opportunities by holding instruments from different markets.