Correlation Between GMS and DDC Enterprise

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

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

Diversification Opportunities for GMS and DDC Enterprise

-0.46

Correlation Coefficient

GMS  DDC Enterprise

Very good diversification

The 3 months correlation between GMS and DDC is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and DDC Enterprise Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DDC Enterprise 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 DDC Enterprise. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DDC Enterprise has no effect on the direction of GMS i.e., GMS and DDC Enterprise go up and down completely randomly.

Pair Corralation between GMS and DDC Enterprise

Considering the 90-day investment horizon GMS Inc is expected to generate 0.31 times more return on investment than DDC Enterprise. However, GMS Inc is 3.25 times less risky than DDC Enterprise. It trades about -0.35 of its potential returns per unit of risk. DDC Enterprise Limited is currently generating about -0.23 per unit of risk. If you would invest  9,830  in GMS Inc on September 21, 2024 and sell it today you would lose (1,286) from holding GMS Inc or give up 13.08% of portfolio value over 90 days.

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

GMS Inc  vs.  DDC Enterprise Limited

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.

DDC Enterprise

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DDC Enterprise Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with GMS and DDC Enterprise

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

The idea behind GMS Inc and DDC Enterprise Limited 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.