Correlation Between SMA Solar and Deckers Outdoor

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

Diversification Opportunities for SMA Solar and Deckers Outdoor

-0.4

Correlation Coefficient

SMA Solar  Deckers Outdoor

Very good diversification

The 3 months correlation between SMA and Deckers is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Deckers Outdoor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deckers Outdoor 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 Deckers Outdoor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deckers Outdoor has no effect on the direction of SMA Solar i.e., SMA Solar and Deckers Outdoor go up and down completely randomly.

Pair Corralation between SMA Solar and Deckers Outdoor

Assuming the 90 days horizon SMA Solar Technology is expected to generate 2.73 times more return on investment than Deckers Outdoor. However, SMA Solar is 2.73 times more volatile than Deckers Outdoor. It trades about 0.1 of its potential returns per unit of risk. Deckers Outdoor is currently generating about 0.07 per unit of risk. If you would invest  1,510  in SMA Solar Technology on October 11, 2024 and sell it today you would earn a total of  99.00  from holding SMA Solar Technology or generate 6.56% return on investment over 90 days.

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

SMA Solar Technology  vs.  Deckers Outdoor

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 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.

Deckers Outdoor

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Deckers Outdoor are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Deckers Outdoor reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SMA Solar and Deckers Outdoor

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

The idea behind SMA Solar Technology and Deckers Outdoor 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.