Correlation Between Gorman Rupp and Smith AO

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

By analyzing existing cross correlation between Gorman Rupp and Smith AO, you can compare the effects of market volatilities on Gorman Rupp and Smith AO 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 Gorman Rupp with a short position of Smith AO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gorman Rupp and Smith AO.

Diversification Opportunities for Gorman Rupp and Smith AO

-0.17

Correlation Coefficient

Gorman Rupp  Smith AO

Good diversification

The 3 months correlation between Gorman and Smith is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Gorman Rupp and Smith AO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith AO and Gorman Rupp 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 Gorman Rupp are associated (or correlated) with Smith AO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith AO has no effect on the direction of Gorman Rupp i.e., Gorman Rupp and Smith AO go up and down completely randomly.

Pair Corralation between Gorman Rupp and Smith AO

Considering the 90-day investment horizon Gorman Rupp is expected to generate 1.2 times more return on investment than Smith AO. However, Gorman Rupp is 1.2 times more volatile than Smith AO. It trades about 0.05 of its potential returns per unit of risk. Smith AO is currently generating about 0.03 per unit of risk. If you would invest  2,600  in Gorman Rupp on October 11, 2024 and sell it today you would earn a total of  1,120  from holding Gorman Rupp or generate 43.08% return on investment over 90 days.

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

Gorman Rupp  vs.  Smith AO

Gorman Rupp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gorman Rupp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Gorman Rupp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Smith AO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith AO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Gorman Rupp and Smith AO

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

The idea behind Gorman Rupp and Smith AO 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.