Correlation Between GMS and Titan Machinery

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

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

Diversification Opportunities for GMS and Titan Machinery

0.71

Correlation Coefficient

GMS  Titan Machinery

Poor diversification

The 3 months correlation between GMS and Titan is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Titan Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Titan Machinery 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 Titan Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Titan Machinery has no effect on the direction of GMS i.e., GMS and Titan Machinery go up and down completely randomly.

Pair Corralation between GMS and Titan Machinery

Considering the 90-day investment horizon GMS Inc is expected to generate 0.55 times more return on investment than Titan Machinery. However, GMS Inc is 1.81 times less risky than Titan Machinery. It trades about 0.18 of its potential returns per unit of risk. Titan Machinery is currently generating about 0.08 per unit of risk. If you would invest  8,363  in GMS Inc on September 4, 2024 and sell it today you would earn a total of  1,650  from holding GMS Inc or generate 19.73% return on investment over 90 days.

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

GMS Inc  vs.  Titan Machinery

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.

Titan Machinery

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with GMS and Titan Machinery

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

The idea behind GMS Inc and Titan Machinery 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.