Correlation Between EGain and Smith Micro

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

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

Diversification Opportunities for EGain and Smith Micro

0.29

Correlation Coefficient

EGain  Smith Micro

Modest diversification

The 3 months correlation between EGain and Smith is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding eGain and Smith Micro Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Micro Software and EGain 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 eGain are associated (or correlated) with Smith Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Micro Software has no effect on the direction of EGain i.e., EGain and Smith Micro go up and down completely randomly.

Pair Corralation between EGain and Smith Micro

Given the investment horizon of 90 days eGain is expected to under-perform the Smith Micro. But the stock apears to be less risky and, when comparing its historical volatility, eGain is 2.11 times less risky than Smith Micro. The stock trades about -0.04 of its potential returns per unit of risk. The Smith Micro Software is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  83.00  in Smith Micro Software on November 30, 2024 and sell it today you would earn a total of  47.00  from holding Smith Micro Software or generate 56.63% return on investment over 90 days.

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

eGain  vs.  Smith Micro Software

eGain

Risk-Adjusted Performance

Very Weak

Over the last 90 days eGain has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Smith Micro Software

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smith Micro Software are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Smith Micro demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EGain and Smith Micro

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

The idea behind eGain and Smith Micro Software 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.