Correlation Between SIEMENS AG and SMA Solar

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

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

Diversification Opportunities for SIEMENS AG and SMA Solar

0.36

Correlation Coefficient

SIEMENS AG  SMA Solar

Weak diversification

The 3 months correlation between SIEMENS and SMA is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding SIEMENS AG SP 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 SIEMENS AG 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 SIEMENS AG SP 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 SIEMENS AG i.e., SIEMENS AG and SMA Solar go up and down completely randomly.

Pair Corralation between SIEMENS AG and SMA Solar

Assuming the 90 days trading horizon SIEMENS AG SP is expected to generate 0.52 times more return on investment than SMA Solar. However, SIEMENS AG SP is 1.93 times less risky than SMA Solar. It trades about 0.15 of its potential returns per unit of risk. SMA Solar Technology is currently generating about 0.06 per unit of risk. If you would invest  8,938  in SIEMENS AG SP on November 30, 2024 and sell it today you would earn a total of  1,762  from holding SIEMENS AG SP or generate 19.71% return on investment over 90 days.

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

SIEMENS AG SP  vs.  SMA Solar Technology

SIEMENS AG SP

Risk-Adjusted Performance

Good

Over the last 90 days SIEMENS AG SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak technical and fundamental indicators, SIEMENS AG reported solid returns over the last few months and may actually be approaching a breakup point.

SMA Solar Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SMA Solar Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, SMA Solar reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SIEMENS AG and SMA Solar

The main advantage of trading using opposite SIEMENS AG and SMA Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SIEMENS AG 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 SIEMENS AG SP 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.