Correlation Between Smith Douglas and PACCAR

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

Diversification Opportunities for Smith Douglas and PACCAR

-0.45

Correlation Coefficient

Smith Douglas  PACCAR

Very good diversification

The 3 months correlation between Smith and PACCAR is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc 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 PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of Smith Douglas i.e., Smith Douglas and PACCAR go up and down completely randomly.

Pair Corralation between Smith Douglas and PACCAR

Given the investment horizon of 90 days Smith Douglas Homes is expected to under-perform the PACCAR. In addition to that, Smith Douglas is 2.16 times more volatile than PACCAR Inc. It trades about -0.38 of its total potential returns per unit of risk. PACCAR Inc is currently generating about -0.31 per unit of volatility. If you would invest  11,329  in PACCAR Inc on September 26, 2024 and sell it today you would lose (811.00) from holding PACCAR Inc or give up 7.16% of portfolio value over 90 days.

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

Smith Douglas Homes  vs.  PACCAR Inc

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 conflicting performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

PACCAR Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PACCAR Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, PACCAR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Smith Douglas and PACCAR

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

The idea behind Smith Douglas Homes and PACCAR Inc 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.