Correlation Between SMA Solar and Extra Space

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

Diversification Opportunities for SMA Solar and Extra Space

-0.43

Correlation Coefficient

SMA Solar  Extra Space

Very good diversification

The 3 months correlation between SMA and Extra is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Extra Space Storage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Extra Space Storage 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 Extra Space. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Extra Space Storage has no effect on the direction of SMA Solar i.e., SMA Solar and Extra Space go up and down completely randomly.

Pair Corralation between SMA Solar and Extra Space

Assuming the 90 days horizon SMA Solar Technology is expected to generate 3.74 times more return on investment than Extra Space. However, SMA Solar is 3.74 times more volatile than Extra Space Storage. It trades about 0.05 of its potential returns per unit of risk. Extra Space Storage is currently generating about 0.1 per unit of risk. If you would invest  1,419  in SMA Solar Technology on October 26, 2024 and sell it today you would earn a total of  38.00  from holding SMA Solar Technology or generate 2.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

SMA Solar Technology  vs.  Extra Space Storage

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Extra Space Storage

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Extra Space Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Extra Space is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SMA Solar and Extra Space

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

The idea behind SMA Solar Technology and Extra Space Storage 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..