Correlation Between GMS and Tandy Leather

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

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

Diversification Opportunities for GMS and Tandy Leather

-0.7

Correlation Coefficient

GMS  Tandy Leather

Excellent diversification

The 3 months correlation between GMS and Tandy is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Tandy Leather Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tandy Leather Factory 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 Tandy Leather. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tandy Leather Factory has no effect on the direction of GMS i.e., GMS and Tandy Leather go up and down completely randomly.

Pair Corralation between GMS and Tandy Leather

Considering the 90-day investment horizon GMS Inc is expected to under-perform the Tandy Leather. But the stock apears to be less risky and, when comparing its historical volatility, GMS Inc is 1.25 times less risky than Tandy Leather. The stock trades about 0.0 of its potential returns per unit of risk. The Tandy Leather Factory is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  436.00  in Tandy Leather Factory on October 7, 2024 and sell it today you would earn a total of  39.00  from holding Tandy Leather Factory or generate 8.94% return on investment over 90 days.

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

GMS Inc  vs.  Tandy Leather Factory

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.

Tandy Leather Factory

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Tandy Leather Factory are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Tandy Leather reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMS and Tandy Leather

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

The idea behind GMS Inc and Tandy Leather Factory 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.