Correlation Between SMA Solar and American Express

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

By analyzing existing cross correlation between SMA Solar Technology and American Express Co, you can compare the effects of market volatilities on SMA Solar and American Express 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 SMA Solar with a short position of American Express. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA Solar and American Express.

Diversification Opportunities for SMA Solar and American Express

-0.27

Correlation Coefficient

SMA Solar  American Express

Very good diversification

The 3 months correlation between SMA and American is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and American Express Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express and SMA Solar 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 SMA Solar Technology are associated (or correlated) with American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of SMA Solar i.e., SMA Solar and American Express go up and down completely randomly.

Pair Corralation between SMA Solar and American Express

Assuming the 90 days trading horizon SMA Solar is expected to generate 6.52 times less return on investment than American Express. In addition to that, SMA Solar is 2.61 times more volatile than American Express Co. It trades about 0.01 of its total potential returns per unit of risk. American Express Co is currently generating about 0.17 per unit of volatility. If you would invest  26,921  in American Express Co on October 24, 2024 and sell it today you would earn a total of  4,729  from holding American Express Co or generate 17.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

SMA Solar Technology  vs.  American Express Co

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, SMA Solar is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

American Express

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express Co are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, American Express unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SMA Solar and American Express

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

The idea behind SMA Solar Technology and American Express Co 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.