Correlation Between Liberty Flour and SM Investments

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

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

Diversification Opportunities for Liberty Flour and SM Investments

-0.64

Correlation Coefficient

Liberty Flour  SM Investments

Excellent diversification

The 3 months correlation between Liberty and SM Investments is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Liberty Flour Mills 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 Liberty Flour 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 Liberty Flour Mills 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 Liberty Flour i.e., Liberty Flour and SM Investments go up and down completely randomly.

Pair Corralation between Liberty Flour and SM Investments

Assuming the 90 days trading horizon Liberty Flour Mills is expected to generate 4.11 times more return on investment than SM Investments. However, Liberty Flour is 4.11 times more volatile than SM Investments Corp. It trades about 0.07 of its potential returns per unit of risk. SM Investments Corp is currently generating about -0.03 per unit of risk. If you would invest  1,271  in Liberty Flour Mills on October 20, 2024 and sell it today you would earn a total of  327.00  from holding Liberty Flour Mills or generate 25.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	62.81%
Values	Daily Returns

Liberty Flour Mills  vs.  SM Investments Corp

Liberty Flour Mills

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Flour Mills are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Liberty Flour exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Liberty Flour and SM Investments

The main advantage of trading using opposite Liberty Flour and SM Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liberty Flour 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 Liberty Flour Mills 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.