Correlation Between SMA Solar and VIVA WINE

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

Diversification Opportunities for SMA Solar and VIVA WINE

0.73

Correlation Coefficient

SMA Solar  VIVA WINE

Poor diversification

The 3 months correlation between SMA and VIVA is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and VIVA WINE GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VIVA WINE GROUP 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 VIVA WINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VIVA WINE GROUP has no effect on the direction of SMA Solar i.e., SMA Solar and VIVA WINE go up and down completely randomly.

Pair Corralation between SMA Solar and VIVA WINE

Assuming the 90 days trading horizon SMA Solar Technology is expected to generate 3.53 times more return on investment than VIVA WINE. However, SMA Solar is 3.53 times more volatile than VIVA WINE GROUP. It trades about 0.13 of its potential returns per unit of risk. VIVA WINE GROUP is currently generating about 0.13 per unit of risk. If you would invest  1,421  in SMA Solar Technology on December 26, 2024 and sell it today you would earn a total of  685.00  from holding SMA Solar Technology or generate 48.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

SMA Solar Technology  vs.  VIVA WINE GROUP

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. In spite of comparatively fragile basic indicators, SMA Solar unveiled solid returns over the last few months and may actually be approaching a breakup point.

VIVA WINE GROUP

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VIVA WINE GROUP are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, VIVA WINE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SMA Solar and VIVA WINE

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

The idea behind SMA Solar Technology and VIVA WINE GROUP 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.