Correlation Between GMS and Wilshire Real

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

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

Diversification Opportunities for GMS and Wilshire Real

0.77

Correlation Coefficient

GMS  Wilshire Real

Poor diversification

The 3 months correlation between GMS and Wilshire is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Wilshire Real Estate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wilshire Real Estate 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 Wilshire Real. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wilshire Real Estate has no effect on the direction of GMS i.e., GMS and Wilshire Real go up and down completely randomly.

Pair Corralation between GMS and Wilshire Real

Considering the 90-day investment horizon GMS Inc is expected to generate 1.63 times more return on investment than Wilshire Real. However, GMS is 1.63 times more volatile than Wilshire Real Estate. It trades about 0.06 of its potential returns per unit of risk. Wilshire Real Estate is currently generating about 0.03 per unit of risk. If you would invest  5,203  in GMS Inc on October 10, 2024 and sell it today you would earn a total of  2,891  from holding GMS Inc or generate 55.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

GMS Inc  vs.  Wilshire Real Estate

Pair Trading with GMS and Wilshire Real

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

The idea behind GMS Inc and Wilshire Real Estate 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.