Correlation Between GMS and AAON

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

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

Diversification Opportunities for GMS and AAON

0.23

Correlation Coefficient

GMS  AAON

Modest diversification

The 3 months correlation between GMS and AAON is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and AAON Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AAON Inc 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 AAON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AAON Inc has no effect on the direction of GMS i.e., GMS and AAON go up and down completely randomly.

Pair Corralation between GMS and AAON

Considering the 90-day investment horizon GMS is expected to generate 1.89 times less return on investment than AAON. But when comparing it to its historical volatility, GMS Inc is 1.24 times less risky than AAON. It trades about 0.39 of its potential returns per unit of risk. AAON Inc is currently generating about 0.6 of returns per unit of risk over similar time horizon. If you would invest  8,826  in AAON Inc on July 12, 2024 and sell it today you would earn a total of  2,122  from holding AAON Inc or generate 24.04% return on investment over 90 days.

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

GMS Inc  vs.  AAON Inc

GMS Inc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in GMS Inc are ranked lower than 4 (%) 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 November 2024.

AAON Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AAON Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, AAON displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMS and AAON

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

The idea behind GMS Inc and AAON 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.