Correlation Between National Presto and Smith Wesson

Can any of the company-specific risk be diversified away by investing in both National Presto and Smith Wesson 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 National Presto and Smith Wesson into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Presto Industries and Smith Wesson Brands, you can compare the effects of market volatilities on National Presto and Smith Wesson 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 National Presto with a short position of Smith Wesson. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Presto and Smith Wesson.

Diversification Opportunities for National Presto and Smith Wesson

0.78

Correlation Coefficient

National Presto  Smith Wesson

Poor diversification

The 3 months correlation between National and Smith is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding National Presto Industries and Smith Wesson Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Wesson Brands and National Presto 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 National Presto Industries are associated (or correlated) with Smith Wesson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Wesson Brands has no effect on the direction of National Presto i.e., National Presto and Smith Wesson go up and down completely randomly.

Pair Corralation between National Presto and Smith Wesson

Considering the 90-day investment horizon National Presto Industries is expected to under-perform the Smith Wesson. But the stock apears to be less risky and, when comparing its historical volatility, National Presto Industries is 1.31 times less risky than Smith Wesson. The stock trades about -0.09 of its potential returns per unit of risk. The Smith Wesson Brands is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  966.00  in Smith Wesson Brands on December 28, 2024 and sell it today you would lose (31.00) from holding Smith Wesson Brands or give up 3.21% of portfolio value over 90 days.

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

National Presto Industries  vs.  Smith Wesson Brands

National Presto Indu

Risk-Adjusted Performance

Very Weak

Over the last 90 days National Presto Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Smith Wesson Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smith Wesson Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Smith Wesson is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with National Presto and Smith Wesson

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

The idea behind National Presto Industries and Smith Wesson Brands 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.