Correlation Between SMA Solar and TITAN MACHINERY

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

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

Diversification Opportunities for SMA Solar and TITAN MACHINERY

-0.63

Correlation Coefficient

SMA Solar  TITAN MACHINERY

Excellent diversification

The 3 months correlation between SMA and TITAN is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and TITAN MACHINERY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TITAN MACHINERY and SMA Solar 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 SMA Solar Technology are associated (or correlated) with TITAN MACHINERY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TITAN MACHINERY has no effect on the direction of SMA Solar i.e., SMA Solar and TITAN MACHINERY go up and down completely randomly.

Pair Corralation between SMA Solar and TITAN MACHINERY

Assuming the 90 days horizon SMA Solar Technology is expected to under-perform the TITAN MACHINERY. In addition to that, SMA Solar is 1.16 times more volatile than TITAN MACHINERY. It trades about -0.07 of its total potential returns per unit of risk. TITAN MACHINERY is currently generating about -0.05 per unit of volatility. If you would invest  3,880  in TITAN MACHINERY on October 4, 2024 and sell it today you would lose (2,570) from holding TITAN MACHINERY or give up 66.24% of portfolio value over 90 days.

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

SMA Solar Technology  vs.  TITAN MACHINERY

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

TITAN MACHINERY

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TITAN MACHINERY are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, TITAN MACHINERY may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with SMA Solar and TITAN MACHINERY

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

The idea behind SMA Solar Technology and TITAN MACHINERY 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.