Correlation Between GMS and Lincoln Educational

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

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

Diversification Opportunities for GMS and Lincoln Educational

0.88

Correlation Coefficient

GMS  Lincoln Educational

Very poor diversification

The 3 months correlation between GMS and Lincoln is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Lincoln Educational Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lincoln Educational 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 Lincoln Educational. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lincoln Educational has no effect on the direction of GMS i.e., GMS and Lincoln Educational go up and down completely randomly.

Pair Corralation between GMS and Lincoln Educational

Considering the 90-day investment horizon GMS is expected to generate 1.75 times less return on investment than Lincoln Educational. But when comparing it to its historical volatility, GMS Inc is 1.72 times less risky than Lincoln Educational. It trades about 0.27 of its potential returns per unit of risk. Lincoln Educational Services is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  1,338  in Lincoln Educational Services on September 5, 2024 and sell it today you would earn a total of  277.00  from holding Lincoln Educational Services or generate 20.7% return on investment over 90 days.

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

GMS Inc  vs.  Lincoln Educational Services

GMS Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GMS Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, GMS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Lincoln Educational

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lincoln Educational Services are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Lincoln Educational exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMS and Lincoln Educational

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

The idea behind GMS Inc and Lincoln Educational Services 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.