Correlation Between GMS and Maanshan Iron

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

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

Diversification Opportunities for GMS and Maanshan Iron

0.44

Correlation Coefficient

GMS  Maanshan Iron

Very weak diversification

The 3 months correlation between GMS and Maanshan is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Maanshan Iron Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Maanshan Iron Steel 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 Maanshan Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Maanshan Iron Steel has no effect on the direction of GMS i.e., GMS and Maanshan Iron go up and down completely randomly.

Pair Corralation between GMS and Maanshan Iron

Considering the 90-day investment horizon GMS Inc is expected to generate 0.4 times more return on investment than Maanshan Iron. However, GMS Inc is 2.52 times less risky than Maanshan Iron. It trades about 0.18 of its potential returns per unit of risk. Maanshan Iron Steel is currently generating about -0.01 per unit of risk. If you would invest  8,376  in GMS Inc on September 3, 2024 and sell it today you would earn a total of  1,659  from holding GMS Inc or generate 19.81% return on investment over 90 days.

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

GMS Inc  vs.  Maanshan Iron Steel

GMS Inc

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GMS Inc are ranked lower than 14 (%) 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.

Maanshan Iron Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Maanshan Iron Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Maanshan Iron is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with GMS and Maanshan Iron

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

The idea behind GMS Inc and Maanshan Iron Steel 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.