Correlation Between Small Cap and Senmiao Technology

Can any of the company-specific risk be diversified away by investing in both Small Cap and Senmiao Technology 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 Small Cap and Senmiao Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Small Cap Premium and Senmiao Technology, you can compare the effects of market volatilities on Small Cap and Senmiao Technology 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 Small Cap with a short position of Senmiao Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and Senmiao Technology.

Diversification Opportunities for Small Cap and Senmiao Technology

-0.47

Correlation Coefficient

Small Cap  Senmiao Technology

Very good diversification

The 3 months correlation between Small and Senmiao is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and Senmiao Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Senmiao Technology and Small Cap 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 Small Cap Premium are associated (or correlated) with Senmiao Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Senmiao Technology has no effect on the direction of Small Cap i.e., Small Cap and Senmiao Technology go up and down completely randomly.

Pair Corralation between Small Cap and Senmiao Technology

Considering the 90-day investment horizon Small Cap Premium is expected to generate 0.1 times more return on investment than Senmiao Technology. However, Small Cap Premium is 10.1 times less risky than Senmiao Technology. It trades about 0.0 of its potential returns per unit of risk. Senmiao Technology is currently generating about -0.02 per unit of risk. If you would invest  2,463  in Small Cap Premium on December 19, 2024 and sell it today you would lose (3.00) from holding Small Cap Premium or give up 0.12% of portfolio value over 90 days.

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

Small Cap Premium  vs.  Senmiao Technology

Small Cap Premium

Risk-Adjusted Performance

Very Weak

Over the last 90 days Small Cap Premium has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Senmiao Technology

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Small Cap and Senmiao Technology

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

The idea behind Small Cap Premium and Senmiao 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.