Correlation Between SMA Solar and Tokyo Gas

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

Diversification Opportunities for SMA Solar and Tokyo Gas

-0.65

Correlation Coefficient

SMA Solar  Tokyo Gas

Excellent diversification

The 3 months correlation between SMA and Tokyo is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Tokyo Gas CoLtd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Gas CoLtd 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 Tokyo Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Gas CoLtd has no effect on the direction of SMA Solar i.e., SMA Solar and Tokyo Gas go up and down completely randomly.

Pair Corralation between SMA Solar and Tokyo Gas

Assuming the 90 days horizon SMA Solar Technology is expected to under-perform the Tokyo Gas. In addition to that, SMA Solar is 1.73 times more volatile than Tokyo Gas CoLtd. It trades about -0.06 of its total potential returns per unit of risk. Tokyo Gas CoLtd is currently generating about 0.19 per unit of volatility. If you would invest  2,100  in Tokyo Gas CoLtd on September 13, 2024 and sell it today you would earn a total of  660.00  from holding Tokyo Gas CoLtd or generate 31.43% return on investment over 90 days.

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

SMA Solar Technology  vs.  Tokyo Gas CoLtd

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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Tokyo Gas CoLtd

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Gas CoLtd are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tokyo Gas reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SMA Solar and Tokyo Gas

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

The idea behind SMA Solar Technology and Tokyo Gas CoLtd 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.