Correlation Between Gibraltar Industries and Advanced Drainage

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

By analyzing existing cross correlation between Gibraltar Industries and Advanced Drainage Systems, you can compare the effects of market volatilities on Gibraltar Industries and Advanced Drainage 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 Gibraltar Industries with a short position of Advanced Drainage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Gibraltar Industries and Advanced Drainage.

Diversification Opportunities for Gibraltar Industries and Advanced Drainage

0.34

Correlation Coefficient

Gibraltar Industries  Advanced Drainage

Weak diversification

The 3 months correlation between Gibraltar and Advanced is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Gibraltar Industries and Advanced Drainage Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Drainage Systems and Gibraltar Industries 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 Gibraltar Industries are associated (or correlated) with Advanced Drainage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Drainage Systems has no effect on the direction of Gibraltar Industries i.e., Gibraltar Industries and Advanced Drainage go up and down completely randomly.

Pair Corralation between Gibraltar Industries and Advanced Drainage

Given the investment horizon of 90 days Gibraltar Industries is expected to under-perform the Advanced Drainage. In addition to that, Gibraltar Industries is 1.05 times more volatile than Advanced Drainage Systems. It trades about -0.02 of its total potential returns per unit of risk. Advanced Drainage Systems is currently generating about 0.09 per unit of volatility. If you would invest  16,329  in Advanced Drainage Systems on February 23, 2024 and sell it today you would earn a total of  1,377  from holding Advanced Drainage Systems or generate 8.43% return on investment over 90 days.

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

Gibraltar Industries  vs.  Advanced Drainage Systems

Gibraltar Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gibraltar Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Gibraltar Industries is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Advanced Drainage Systems

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Advanced Drainage Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, Advanced Drainage may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Gibraltar Industries and Advanced Drainage

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

The idea behind Gibraltar Industries and Advanced Drainage Systems 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.