Correlation Between SMA Solar and Japan Tobacco

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

Diversification Opportunities for SMA Solar and Japan Tobacco

0.0

Correlation Coefficient

SMA Solar  Japan Tobacco

Pay attention - limited upside

The 3 months correlation between SMA and Japan is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Japan Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Tobacco 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 Japan Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Tobacco has no effect on the direction of SMA Solar i.e., SMA Solar and Japan Tobacco go up and down completely randomly.

Pair Corralation between SMA Solar and Japan Tobacco

Assuming the 90 days horizon SMA Solar Technology is expected to generate 3.99 times more return on investment than Japan Tobacco. However, SMA Solar is 3.99 times more volatile than Japan Tobacco. It trades about 0.14 of its potential returns per unit of risk. Japan Tobacco is currently generating about 0.03 per unit of risk. If you would invest  1,419  in SMA Solar Technology on December 27, 2024 and sell it today you would earn a total of  709.00  from holding SMA Solar Technology or generate 49.96% return on investment over 90 days.

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

SMA Solar Technology  vs.  Japan Tobacco

SMA Solar Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SMA Solar Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, SMA Solar reported solid returns over the last few months and may actually be approaching a breakup point.

Japan Tobacco

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Japan Tobacco are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Japan Tobacco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SMA Solar and Japan Tobacco

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

The idea behind SMA Solar Technology and Japan Tobacco 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.