Correlation Between Perma Pipe and GMS

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

By analyzing existing cross correlation between Perma Pipe International Holdings and GMS Inc, you can compare the effects of market volatilities on Perma Pipe and GMS 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 Perma Pipe with a short position of GMS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Perma Pipe and GMS.

Diversification Opportunities for Perma Pipe and GMS

0.78

Correlation Coefficient

Perma Pipe  GMS

Poor diversification

The 3 months correlation between Perma and GMS is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Perma Pipe International Holdi and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc and Perma Pipe 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 Perma Pipe International Holdings are associated (or correlated) with GMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMS Inc has no effect on the direction of Perma Pipe i.e., Perma Pipe and GMS go up and down completely randomly.

Pair Corralation between Perma Pipe and GMS

Given the investment horizon of 90 days Perma Pipe International Holdings is expected to generate 1.93 times more return on investment than GMS. However, Perma Pipe is 1.93 times more volatile than GMS Inc. It trades about 0.18 of its potential returns per unit of risk. GMS Inc is currently generating about 0.11 per unit of risk. If you would invest  1,195  in Perma Pipe International Holdings on September 12, 2024 and sell it today you would earn a total of  506.00  from holding Perma Pipe International Holdings or generate 42.34% return on investment over 90 days.

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

Perma Pipe International Holdi  vs.  GMS Inc

Perma Pipe Internati

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Perma Pipe International Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting forward indicators, Perma Pipe demonstrated solid returns over the last few months and may actually be approaching a breakup point.

GMS Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GMS Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, GMS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Perma Pipe and GMS

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

The idea behind Perma Pipe International Holdings and GMS Inc 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.