Correlation Between Smith Douglas and TRI Pointe

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

Diversification Opportunities for Smith Douglas and TRI Pointe

0.78

Correlation Coefficient

Smith Douglas  TRI Pointe

Poor diversification

The 3 months correlation between Smith and TRI is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and TRI Pointe Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TRI Pointe Homes 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 TRI Pointe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TRI Pointe Homes has no effect on the direction of Smith Douglas i.e., Smith Douglas and TRI Pointe go up and down completely randomly.

Pair Corralation between Smith Douglas and TRI Pointe

Given the investment horizon of 90 days Smith Douglas Homes is expected to generate 1.91 times more return on investment than TRI Pointe. However, Smith Douglas is 1.91 times more volatile than TRI Pointe Homes. It trades about -0.34 of its potential returns per unit of risk. TRI Pointe Homes is currently generating about -0.65 per unit of risk. If you would invest  3,314  in Smith Douglas Homes on September 25, 2024 and sell it today you would lose (564.00) from holding Smith Douglas Homes or give up 17.02% of portfolio value over 90 days.

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

Smith Douglas Homes  vs.  TRI Pointe Homes

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 inconsistent 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.

TRI Pointe Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TRI Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Smith Douglas and TRI Pointe

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

The idea behind Smith Douglas Homes and TRI Pointe Homes 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.