Correlation Between GMS and BBB Foods

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

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

Diversification Opportunities for GMS and BBB Foods

0.3

Correlation Coefficient

GMS  BBB Foods

Weak diversification

The 3 months correlation between GMS and BBB is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods 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 BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of GMS i.e., GMS and BBB Foods go up and down completely randomly.

Pair Corralation between GMS and BBB Foods

Considering the 90-day investment horizon GMS Inc is expected to under-perform the BBB Foods. But the stock apears to be less risky and, when comparing its historical volatility, GMS Inc is 1.57 times less risky than BBB Foods. The stock trades about -0.06 of its potential returns per unit of risk. The BBB Foods is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3,063  in BBB Foods on October 7, 2024 and sell it today you would lose (119.00) from holding BBB Foods or give up 3.89% of portfolio value over 90 days.

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

GMS Inc  vs.  BBB Foods

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 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.

BBB Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, BBB Foods is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with GMS and BBB Foods

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

The idea behind GMS Inc and BBB Foods 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.