Correlation Between Smith Douglas and Montauk Renewables

Can any of the company-specific risk be diversified away by investing in both Smith Douglas and Montauk Renewables 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 Smith Douglas and Montauk Renewables into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Smith Douglas Homes and Montauk Renewables, you can compare the effects of market volatilities on Smith Douglas and Montauk Renewables 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 Smith Douglas with a short position of Montauk Renewables. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Douglas and Montauk Renewables.

Diversification Opportunities for Smith Douglas and Montauk Renewables

0.59

Correlation Coefficient

Smith Douglas  Montauk Renewables

Very weak diversification

The 3 months correlation between Smith and Montauk is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and Montauk Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Montauk Renewables and Smith Douglas 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 Smith Douglas Homes are associated (or correlated) with Montauk Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Montauk Renewables has no effect on the direction of Smith Douglas i.e., Smith Douglas and Montauk Renewables go up and down completely randomly.

Pair Corralation between Smith Douglas and Montauk Renewables

Given the investment horizon of 90 days Smith Douglas Homes is expected to under-perform the Montauk Renewables. But the stock apears to be less risky and, when comparing its historical volatility, Smith Douglas Homes is 2.3 times less risky than Montauk Renewables. The stock trades about -0.18 of its potential returns per unit of risk. The Montauk Renewables is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  378.00  in Montauk Renewables on October 23, 2024 and sell it today you would earn a total of  49.00  from holding Montauk Renewables or generate 12.96% return on investment over 90 days.

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

Smith Douglas Homes  vs.  Montauk Renewables

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Montauk Renewables

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Montauk Renewables has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Smith Douglas and Montauk Renewables

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

The idea behind Smith Douglas Homes and Montauk Renewables 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.