Correlation Between SMA Solar and First Solar

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

Diversification Opportunities for SMA Solar and First Solar

0.66

Correlation Coefficient

SMA Solar  First Solar

Poor diversification

The 3 months correlation between SMA and First is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and First Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Solar 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 First Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Solar has no effect on the direction of SMA Solar i.e., SMA Solar and First Solar go up and down completely randomly.

Pair Corralation between SMA Solar and First Solar

Assuming the 90 days trading horizon SMA Solar Technology is expected to generate 1.32 times more return on investment than First Solar. However, SMA Solar is 1.32 times more volatile than First Solar. It trades about 0.12 of its potential returns per unit of risk. First Solar is currently generating about 0.01 per unit of risk. If you would invest  1,489  in SMA Solar Technology on October 9, 2024 and sell it today you would earn a total of  111.00  from holding SMA Solar Technology or generate 7.45% return on investment over 90 days.

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

SMA Solar Technology  vs.  First Solar

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. In spite of comparatively stable basic indicators, SMA Solar is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

First Solar

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SMA Solar and First Solar

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

The idea behind SMA Solar Technology and First Solar 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.