Correlation Between Foreign Trade and SMC Investment

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

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

Diversification Opportunities for Foreign Trade and SMC Investment

0.39

Correlation Coefficient

Foreign Trade  SMC Investment

Weak diversification

The 3 months correlation between Foreign and SMC is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Trade Development and SMC Investment Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Investment Trading and Foreign Trade 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 Foreign Trade Development are associated (or correlated) with SMC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMC Investment Trading has no effect on the direction of Foreign Trade i.e., Foreign Trade and SMC Investment go up and down completely randomly.

Pair Corralation between Foreign Trade and SMC Investment

Assuming the 90 days trading horizon Foreign Trade Development is expected to generate 1.19 times more return on investment than SMC Investment. However, Foreign Trade is 1.19 times more volatile than SMC Investment Trading. It trades about 0.12 of its potential returns per unit of risk. SMC Investment Trading is currently generating about 0.12 per unit of risk. If you would invest  1,580,000  in Foreign Trade Development on October 9, 2024 and sell it today you would earn a total of  110,000  from holding Foreign Trade Development or generate 6.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	71.43%
Values	Daily Returns

Foreign Trade Development  vs.  SMC Investment Trading

Foreign Trade Development

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Trade Development are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Foreign Trade is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

SMC Investment Trading

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SMC Investment Trading are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, SMC Investment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Foreign Trade and SMC Investment

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

The idea behind Foreign Trade Development and SMC Investment Trading 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.