Correlation Between GMS and Scilex Holding

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

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

Diversification Opportunities for GMS and Scilex Holding

0.44

Correlation Coefficient

GMS  Scilex Holding

Very weak diversification

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

Pair Corralation between GMS and Scilex Holding

Considering the 90-day investment horizon GMS Inc is expected to under-perform the Scilex Holding. But the stock apears to be less risky and, when comparing its historical volatility, GMS Inc is 10.76 times less risky than Scilex Holding. The stock trades about -0.25 of its potential returns per unit of risk. The Scilex Holding is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  26.00  in Scilex Holding on October 22, 2024 and sell it today you would lose (2.01) from holding Scilex Holding or give up 7.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.5%
Values	Daily Returns

GMS Inc  vs.  Scilex Holding

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.

Scilex Holding

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Scilex Holding are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Scilex Holding showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMS and Scilex Holding

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

The idea behind GMS Inc and Scilex Holding 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.