Correlation Between PureTech Health and SMA Solar

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

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

Diversification Opportunities for PureTech Health and SMA Solar

-0.65

Correlation Coefficient

PureTech Health  SMA Solar

Excellent diversification

The 3 months correlation between PureTech and SMA is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding PureTech Health plc 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 PureTech Health 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 PureTech Health plc 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 PureTech Health i.e., PureTech Health and SMA Solar go up and down completely randomly.

Pair Corralation between PureTech Health and SMA Solar

Assuming the 90 days trading horizon PureTech Health plc is expected to under-perform the SMA Solar. But the stock apears to be less risky and, when comparing its historical volatility, PureTech Health plc is 1.55 times less risky than SMA Solar. The stock trades about -0.03 of its potential returns per unit of risk. The SMA Solar Technology is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,367  in SMA Solar Technology on October 7, 2024 and sell it today you would earn a total of  112.00  from holding SMA Solar Technology or generate 8.19% return on investment over 90 days.

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

PureTech Health plc  vs.  SMA Solar Technology

PureTech Health plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PureTech Health plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, PureTech Health is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with PureTech Health and SMA Solar

The main advantage of trading using opposite PureTech Health and SMA Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PureTech Health 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 PureTech Health plc 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.