Correlation Between KBC Group and SMA Solar

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

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

Diversification Opportunities for KBC Group and SMA Solar

-0.28

Correlation Coefficient

KBC Group  SMA Solar

Very good diversification

The 3 months correlation between KBC and SMA is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding KBC Group NV 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 KBC Group 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 KBC Group NV 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 KBC Group i.e., KBC Group and SMA Solar go up and down completely randomly.

Pair Corralation between KBC Group and SMA Solar

Assuming the 90 days horizon KBC Group is expected to generate 1.44 times less return on investment than SMA Solar. But when comparing it to its historical volatility, KBC Group NV is 5.29 times less risky than SMA Solar. It trades about 0.35 of its potential returns per unit of risk. SMA Solar Technology is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,510  in SMA Solar Technology on October 11, 2024 and sell it today you would earn a total of  99.00  from holding SMA Solar Technology or generate 6.56% return on investment over 90 days.

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

KBC Group NV  vs.  SMA Solar Technology

KBC Group NV

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KBC Group NV are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, KBC Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 nearly stable basic indicators, SMA Solar is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with KBC Group and SMA Solar

The main advantage of trading using opposite KBC Group and SMA Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KBC Group 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 KBC Group NV 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.