Correlation Between SMA SOLAR and Canadian Solar

Can any of the company-specific risk be diversified away by investing in both SMA SOLAR and Canadian 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 Canadian Solar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SMA SOLAR T and Canadian Solar, you can compare the effects of market volatilities on SMA SOLAR and Canadian 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 Canadian Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA SOLAR and Canadian Solar.

Diversification Opportunities for SMA SOLAR and Canadian Solar

-0.14

Correlation Coefficient

SMA SOLAR  Canadian Solar

Good diversification

The 3 months correlation between SMA and Canadian is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding SMA SOLAR T and Canadian Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian 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 T are associated (or correlated) with Canadian Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Solar has no effect on the direction of SMA SOLAR i.e., SMA SOLAR and Canadian Solar go up and down completely randomly.

Pair Corralation between SMA SOLAR and Canadian Solar

Assuming the 90 days horizon SMA SOLAR T is expected to generate 1.81 times more return on investment than Canadian Solar. However, SMA SOLAR is 1.81 times more volatile than Canadian Solar. It trades about 0.08 of its potential returns per unit of risk. Canadian Solar is currently generating about -0.06 per unit of risk. If you would invest  112.00  in SMA SOLAR T on December 4, 2024 and sell it today you would earn a total of  25.00  from holding SMA SOLAR T or generate 22.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

SMA SOLAR T  vs.  Canadian Solar

SMA SOLAR T

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SMA SOLAR T are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SMA SOLAR reported solid returns over the last few months and may actually be approaching a breakup point.

Canadian Solar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Canadian Solar has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with SMA SOLAR and Canadian Solar

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

The idea behind SMA SOLAR T and Canadian 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.