Correlation Between Smith AO and Gorman Rupp

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

By analyzing existing cross correlation between Smith AO and Gorman Rupp, you can compare the effects of market volatilities on Smith AO and Gorman Rupp 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 Smith AO with a short position of Gorman Rupp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith AO and Gorman Rupp.

Diversification Opportunities for Smith AO and Gorman Rupp

0.53

Correlation Coefficient

Smith AO  Gorman Rupp

Very weak diversification

The 3 months correlation between Smith and Gorman is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Smith AO and Gorman Rupp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gorman Rupp and Smith AO 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 Smith AO are associated (or correlated) with Gorman Rupp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gorman Rupp has no effect on the direction of Smith AO i.e., Smith AO and Gorman Rupp go up and down completely randomly.

Pair Corralation between Smith AO and Gorman Rupp

Considering the 90-day investment horizon Smith AO is expected to generate 0.97 times more return on investment than Gorman Rupp. However, Smith AO is 1.03 times less risky than Gorman Rupp. It trades about -0.01 of its potential returns per unit of risk. Gorman Rupp is currently generating about -0.03 per unit of risk. If you would invest  6,856  in Smith AO on December 18, 2024 and sell it today you would lose (107.00) from holding Smith AO or give up 1.56% of portfolio value over 90 days.

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

Smith AO  vs.  Gorman Rupp

Smith AO

Risk-Adjusted Performance

Very Weak

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

Gorman Rupp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gorman Rupp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Gorman Rupp is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Smith AO and Gorman Rupp

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

The idea behind Smith AO and Gorman Rupp 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.