Correlation Between DL Industries and SM Investments

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

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

Diversification Opportunities for DL Industries and SM Investments

0.87

Correlation Coefficient

DL Industries  SM Investments

Very poor diversification

The 3 months correlation between DNL and SM Investments is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding DL Industries and SM Investments Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments Corp and DL Industries 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 DL Industries 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 Corp has no effect on the direction of DL Industries i.e., DL Industries and SM Investments go up and down completely randomly.

Pair Corralation between DL Industries and SM Investments

Assuming the 90 days trading horizon DL Industries is expected to generate 0.8 times more return on investment than SM Investments. However, DL Industries is 1.25 times less risky than SM Investments. It trades about -0.04 of its potential returns per unit of risk. SM Investments Corp is currently generating about -0.06 per unit of risk. If you would invest  628.00  in DL Industries on September 17, 2024 and sell it today you would lose (28.00) from holding DL Industries or give up 4.46% of portfolio value over 90 days.

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

DL Industries  vs.  SM Investments Corp

DL Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

SM Investments Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SM Investments Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with DL Industries and SM Investments

The main advantage of trading using opposite DL Industries and SM Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DL Industries 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 DL Industries and SM Investments Corp 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.