Correlation Between Emperador and SM Investments

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

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

Diversification Opportunities for Emperador and SM Investments

0.59

Correlation Coefficient

Emperador  SM Investments

Very weak diversification

The 3 months correlation between Emperador and SM Investments is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Emperador 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 Emperador 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 Emperador 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 Emperador i.e., Emperador and SM Investments go up and down completely randomly.

Pair Corralation between Emperador and SM Investments

Assuming the 90 days trading horizon Emperador is expected to under-perform the SM Investments. In addition to that, Emperador is 1.32 times more volatile than SM Investments Corp. It trades about -0.25 of its total potential returns per unit of risk. SM Investments Corp is currently generating about -0.15 per unit of volatility. If you would invest  91,800  in SM Investments Corp on December 2, 2024 and sell it today you would lose (15,300) from holding SM Investments Corp or give up 16.67% of portfolio value over 90 days.

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

Emperador  vs.  SM Investments Corp

Emperador

Risk-Adjusted Performance

Very Weak

Over the last 90 days Emperador 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 Stock's technical and 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 the firm shareholders.

SM Investments Corp

Risk-Adjusted Performance

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 uncertain performance in the last few months, the Stock's basic 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 the firm shareholders.

Pair Trading with Emperador and SM Investments

The main advantage of trading using opposite Emperador and SM Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Emperador 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 Emperador 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.