Correlation Between SBM Offshore and Smithson Investment

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

By analyzing existing cross correlation between SBM Offshore NV and Smithson Investment Trust, you can compare the effects of market volatilities on SBM Offshore and Smithson Investment 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 SBM Offshore with a short position of Smithson Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBM Offshore and Smithson Investment.

Diversification Opportunities for SBM Offshore and Smithson Investment

0.0

Correlation Coefficient

SBM Offshore  Smithson Investment

Pay attention - limited upside

The 3 months correlation between SBM and Smithson is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding SBM Offshore NV and Smithson Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smithson Investment Trust and SBM Offshore 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 SBM Offshore NV are associated (or correlated) with Smithson Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smithson Investment Trust has no effect on the direction of SBM Offshore i.e., SBM Offshore and Smithson Investment go up and down completely randomly.

Pair Corralation between SBM Offshore and Smithson Investment

Assuming the 90 days trading horizon SBM Offshore NV is expected to generate 2.4 times more return on investment than Smithson Investment. However, SBM Offshore is 2.4 times more volatile than Smithson Investment Trust. It trades about 0.13 of its potential returns per unit of risk. Smithson Investment Trust is currently generating about -0.03 per unit of risk. If you would invest  1,692  in SBM Offshore NV on December 30, 2024 and sell it today you would earn a total of  319.00  from holding SBM Offshore NV or generate 18.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

SBM Offshore NV  vs.  Smithson Investment Trust

SBM Offshore NV

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, SBM Offshore disclosed solid returns over the last few months and may actually be approaching a breakup point.

Smithson Investment Trust

Risk-Adjusted Performance

Very Weak

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

Pair Trading with SBM Offshore and Smithson Investment

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

The idea behind SBM Offshore NV and Smithson Investment Trust 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.

Check out your portfolio center.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..