Correlation Between CECO Environmental and SM Investments

Can any of the company-specific risk be diversified away by investing in both CECO Environmental and SM Investments 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 CECO Environmental and SM Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CECO Environmental Corp and SM Investments, you can compare the effects of market volatilities on CECO Environmental and SM Investments 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 CECO Environmental with a short position of SM Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of CECO Environmental and SM Investments.

Diversification Opportunities for CECO Environmental and SM Investments

0.18

Correlation Coefficient

CECO Environmental  SM Investments

Average diversification

The 3 months correlation between CECO and SVTMF is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding CECO Environmental Corp and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments and CECO Environmental 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 CECO Environmental Corp are associated (or correlated) with SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of CECO Environmental i.e., CECO Environmental and SM Investments go up and down completely randomly.

Pair Corralation between CECO Environmental and SM Investments

Given the investment horizon of 90 days CECO Environmental Corp is expected to generate 1.76 times more return on investment than SM Investments. However, CECO Environmental is 1.76 times more volatile than SM Investments. It trades about -0.11 of its potential returns per unit of risk. SM Investments is currently generating about -0.19 per unit of risk. If you would invest  2,949  in CECO Environmental Corp on December 20, 2024 and sell it today you would lose (527.00) from holding CECO Environmental Corp or give up 17.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	88.14%
Values	Daily Returns

CECO Environmental Corp  vs.  SM Investments

CECO Environmental Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CECO Environmental Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

SM Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days SM Investments 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 primary indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with CECO Environmental and SM Investments

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

The idea behind CECO Environmental Corp and SM Investments 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.