Correlation Between GMS and Interactive Brokers

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

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

Diversification Opportunities for GMS and Interactive Brokers

0.55

Correlation Coefficient

GMS  Interactive Brokers

Very weak diversification

The 3 months correlation between GMS and Interactive is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Interactive Brokers Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Interactive Brokers 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 Interactive Brokers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Interactive Brokers has no effect on the direction of GMS i.e., GMS and Interactive Brokers go up and down completely randomly.

Pair Corralation between GMS and Interactive Brokers

Considering the 90-day investment horizon GMS Inc is expected to under-perform the Interactive Brokers. But the stock apears to be less risky and, when comparing its historical volatility, GMS Inc is 1.9 times less risky than Interactive Brokers. The stock trades about -0.1 of its potential returns per unit of risk. The Interactive Brokers Group is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  17,873  in Interactive Brokers Group on December 29, 2024 and sell it today you would lose (1,401) from holding Interactive Brokers Group or give up 7.84% of portfolio value over 90 days.

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

GMS Inc  vs.  Interactive Brokers Group

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.

Interactive Brokers

Risk-Adjusted Performance

Very Weak

Over the last 90 days Interactive Brokers Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking signals, Interactive Brokers is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with GMS and Interactive Brokers

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

The idea behind GMS Inc and Interactive Brokers Group 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.