Correlation Between Enphase Energy and SMA Solar

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

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

Diversification Opportunities for Enphase Energy and SMA Solar

0.92

Correlation Coefficient

Enphase Energy  SMA Solar

Almost no diversification

The 3 months correlation between Enphase and SMA is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Enphase Energy and SMA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA Solar Technology and Enphase Energy 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 Enphase Energy are associated (or correlated) with SMA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA Solar Technology has no effect on the direction of Enphase Energy i.e., Enphase Energy and SMA Solar go up and down completely randomly.

Pair Corralation between Enphase Energy and SMA Solar

Given the investment horizon of 90 days Enphase Energy is expected to generate 1.07 times more return on investment than SMA Solar. However, Enphase Energy is 1.07 times more volatile than SMA Solar Technology. It trades about -0.12 of its potential returns per unit of risk. SMA Solar Technology is currently generating about -0.16 per unit of risk. If you would invest  11,149  in Enphase Energy on September 16, 2024 and sell it today you would lose (3,765) from holding Enphase Energy or give up 33.77% of portfolio value over 90 days.

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

Enphase Energy  vs.  SMA Solar Technology

Enphase Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enphase Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Enphase Energy and SMA Solar

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

The idea behind Enphase Energy and SMA Solar Technology 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.