Correlation Between SMA Solar and CHINA BANK

Can any of the company-specific risk be diversified away by investing in both SMA Solar and CHINA BANK 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 CHINA BANK 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 CHINA BANK ADR20, you can compare the effects of market volatilities on SMA Solar and CHINA BANK 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 CHINA BANK. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA Solar and CHINA BANK.

Diversification Opportunities for SMA Solar and CHINA BANK

-0.27

Correlation Coefficient

SMA Solar  CHINA BANK

Very good diversification

The 3 months correlation between SMA and CHINA is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and CHINA BANK ADR20 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA BANK ADR20 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 CHINA BANK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA BANK ADR20 has no effect on the direction of SMA Solar i.e., SMA Solar and CHINA BANK go up and down completely randomly.

Pair Corralation between SMA Solar and CHINA BANK

Assuming the 90 days horizon SMA Solar Technology is expected to generate 2.19 times more return on investment than CHINA BANK. However, SMA Solar is 2.19 times more volatile than CHINA BANK ADR20. It trades about 0.11 of its potential returns per unit of risk. CHINA BANK ADR20 is currently generating about 0.06 per unit of risk. If you would invest  1,502  in SMA Solar Technology on October 12, 2024 and sell it today you would earn a total of  107.00  from holding SMA Solar Technology or generate 7.12% return on investment over 90 days.

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

SMA Solar Technology  vs.  CHINA BANK ADR20

SMA Solar Technology

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SMA Solar Technology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SMA Solar is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

CHINA BANK ADR20

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA BANK ADR20 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA BANK may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with SMA Solar and CHINA BANK

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

The idea behind SMA Solar Technology and CHINA BANK ADR20 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.