Correlation Between SolarEdge Technologies and SMA Solar

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

By analyzing existing cross correlation between SolarEdge Technologies and SMA Solar Technology, you can compare the effects of market volatilities on SolarEdge Technologies and SMA 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 SolarEdge Technologies with a short position of SMA Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of SolarEdge Technologies and SMA Solar.

Diversification Opportunities for SolarEdge Technologies and SMA Solar

-0.31

Correlation Coefficient

SolarEdge Technologies  SMA Solar

Very good diversification

The 3 months correlation between SolarEdge and SMA is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding SolarEdge Technologies and SMA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA Solar Technology and SolarEdge Technologies 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 SolarEdge Technologies are associated (or correlated) with SMA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA Solar Technology has no effect on the direction of SolarEdge Technologies i.e., SolarEdge Technologies and SMA Solar go up and down completely randomly.

Pair Corralation between SolarEdge Technologies and SMA Solar

Given the investment horizon of 90 days SolarEdge Technologies is expected to generate 1.54 times less return on investment than SMA Solar. But when comparing it to its historical volatility, SolarEdge Technologies is 1.17 times less risky than SMA Solar. It trades about 0.08 of its potential returns per unit of risk. SMA Solar Technology is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,514  in SMA Solar Technology on December 28, 2024 and sell it today you would earn a total of  462.00  from holding SMA Solar Technology or generate 30.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

SolarEdge Technologies  vs.  SMA Solar Technology

SolarEdge Technologies

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SolarEdge Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, SolarEdge Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

SMA Solar Technology

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SMA Solar Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, SMA Solar reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SolarEdge Technologies and SMA Solar

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

The idea behind SolarEdge Technologies and SMA Solar Technology 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.