Correlation Between Dillards and SM Investments

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

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

Diversification Opportunities for Dillards and SM Investments

0.33

Correlation Coefficient

Dillards  SM Investments

Weak diversification

The 3 months correlation between Dillards and SVTMF is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Dillards and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments and Dillards 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 Dillards 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 Dillards i.e., Dillards and SM Investments go up and down completely randomly.

Pair Corralation between Dillards and SM Investments

Considering the 90-day investment horizon Dillards is expected to generate 1.4 times more return on investment than SM Investments. However, Dillards is 1.4 times more volatile than SM Investments. It trades about 0.04 of its potential returns per unit of risk. SM Investments is currently generating about 0.01 per unit of risk. If you would invest  33,674  in Dillards on October 5, 2024 and sell it today you would earn a total of  11,397  from holding Dillards or generate 33.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	63.36%
Values	Daily Returns

Dillards  vs.  SM Investments

Dillards

Risk-Adjusted Performance

13 of 100

Good

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

SM Investments

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady primary indicators, SM Investments reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dillards and SM Investments

The main advantage of trading using opposite Dillards and SM Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dillards 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 Dillards 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.