Correlation Between GMS and Louisiana Pacific

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

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

Diversification Opportunities for GMS and Louisiana Pacific

0.84

Correlation Coefficient

GMS  Louisiana Pacific

Very poor diversification

The 3 months correlation between GMS and Louisiana is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Louisiana Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Louisiana Pacific 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 Louisiana Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Louisiana Pacific has no effect on the direction of GMS i.e., GMS and Louisiana Pacific go up and down completely randomly.

Pair Corralation between GMS and Louisiana Pacific

Considering the 90-day investment horizon GMS Inc is expected to under-perform the Louisiana Pacific. But the stock apears to be less risky and, when comparing its historical volatility, GMS Inc is 1.26 times less risky than Louisiana Pacific. The stock trades about -0.1 of its potential returns per unit of risk. The Louisiana Pacific is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  10,314  in Louisiana Pacific on December 28, 2024 and sell it today you would lose (965.00) from holding Louisiana Pacific or give up 9.36% of portfolio value over 90 days.

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

GMS Inc  vs.  Louisiana Pacific

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.

Louisiana Pacific

Risk-Adjusted Performance

Very Weak

Over the last 90 days Louisiana Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with GMS and Louisiana Pacific

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

The idea behind GMS Inc and Louisiana Pacific 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.