Correlation Between EMC2 and SMART

Can any of the company-specific risk be diversified away by investing in both EMC2 and SMART 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 EMC2 and SMART into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EMC2 and SMART, you can compare the effects of market volatilities on EMC2 and SMART 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 EMC2 with a short position of SMART. Check out your portfolio center. Please also check ongoing floating volatility patterns of EMC2 and SMART.

Diversification Opportunities for EMC2 and SMART

0.79

Correlation Coefficient

EMC2  SMART

Poor diversification

The 3 months correlation between EMC2 and SMART is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding EMC2 and SMART in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMART and EMC2 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 EMC2 are associated (or correlated) with SMART. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMART has no effect on the direction of EMC2 i.e., EMC2 and SMART go up and down completely randomly.

Pair Corralation between EMC2 and SMART

Assuming the 90 days trading horizon EMC2 is expected to generate 0.41 times more return on investment than SMART. However, EMC2 is 2.46 times less risky than SMART. It trades about 0.0 of its potential returns per unit of risk. SMART is currently generating about -0.13 per unit of risk. If you would invest  0.05  in EMC2 on December 30, 2024 and sell it today you would lose  0.00  from holding EMC2 or give up 2.78% of portfolio value over 90 days.

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

EMC2  vs.  SMART

EMC2

Risk-Adjusted Performance

Very Weak

Over the last 90 days EMC2 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, EMC2 is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SMART

Risk-Adjusted Performance

Very Weak

Over the last 90 days SMART has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Crypto's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for SMART shareholders.

Pair Trading with EMC2 and SMART

The main advantage of trading using opposite EMC2 and SMART positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EMC2 position performs unexpectedly, SMART 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 SMART will offset losses from the drop in SMART's long position.

The idea behind EMC2 and SMART 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.

Check out your portfolio center.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.