Correlation Between GMS and Olympic Steel

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

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

Diversification Opportunities for GMS and Olympic Steel

0.47

Correlation Coefficient

GMS  Olympic Steel

Very weak diversification

The 3 months correlation between GMS and Olympic is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel 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 Olympic Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olympic Steel has no effect on the direction of GMS i.e., GMS and Olympic Steel go up and down completely randomly.

Pair Corralation between GMS and Olympic Steel

Considering the 90-day investment horizon GMS Inc is expected to under-perform the Olympic Steel. But the stock apears to be less risky and, when comparing its historical volatility, GMS Inc is 1.42 times less risky than Olympic Steel. The stock trades about -0.09 of its potential returns per unit of risk. The Olympic Steel is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,250  in Olympic Steel on December 27, 2024 and sell it today you would earn a total of  14.00  from holding Olympic Steel or generate 0.43% return on investment over 90 days.

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

GMS Inc  vs.  Olympic Steel

GMS Inc

Risk-Adjusted Performance

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.

Olympic Steel

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Olympic Steel are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Olympic Steel is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with GMS and Olympic Steel

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

The idea behind GMS Inc and Olympic Steel 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.