Correlation Between Banco De and SMA Solar

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

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

Diversification Opportunities for Banco De and SMA Solar

0.81

Correlation Coefficient

Banco De  SMA Solar

Very poor diversification

The 3 months correlation between Banco and SMA is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Banco De Chile and SMA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA Solar Technology and Banco De 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 Banco De Chile are associated (or correlated) with SMA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA Solar Technology has no effect on the direction of Banco De i.e., Banco De and SMA Solar go up and down completely randomly.

Pair Corralation between Banco De and SMA Solar

Considering the 90-day investment horizon Banco De Chile is expected to generate 0.23 times more return on investment than SMA Solar. However, Banco De Chile is 4.32 times less risky than SMA Solar. It trades about 0.1 of its potential returns per unit of risk. SMA Solar Technology is currently generating about -0.02 per unit of risk. If you would invest  2,305  in Banco De Chile on September 16, 2024 and sell it today you would earn a total of  48.00  from holding Banco De Chile or generate 2.08% return on investment over 90 days.

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

Banco De Chile  vs.  SMA Solar Technology

Banco De Chile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco De Chile has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Banco De is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

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. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Banco De and SMA Solar

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

The idea behind Banco De Chile and SMA Solar Technology 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.