Correlation Between Integrated Micro and SM Investments

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

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

Diversification Opportunities for Integrated Micro and SM Investments

0.85

Correlation Coefficient

Integrated Micro  SM Investments

Very poor diversification

The 3 months correlation between Integrated and SM Investments is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Integrated Micro Electronics 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 Integrated Micro 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 Integrated Micro Electronics 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 Integrated Micro i.e., Integrated Micro and SM Investments go up and down completely randomly.

Pair Corralation between Integrated Micro and SM Investments

Assuming the 90 days trading horizon Integrated Micro Electronics is expected to under-perform the SM Investments. In addition to that, Integrated Micro is 1.47 times more volatile than SM Investments Corp. It trades about -0.03 of its total potential returns per unit of risk. SM Investments Corp is currently generating about 0.04 per unit of volatility. If you would invest  83,600  in SM Investments Corp on September 19, 2024 and sell it today you would earn a total of  5,400  from holding SM Investments Corp or generate 6.46% return on investment over 90 days.

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

Integrated Micro Electronics  vs.  SM Investments Corp

Integrated Micro Ele

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Integrated Micro Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

SM Investments Corp

Risk-Adjusted Performance

0 of 100

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 latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Integrated Micro and SM Investments

The main advantage of trading using opposite Integrated Micro and SM Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Integrated Micro 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 Integrated Micro Electronics 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.