Correlation Between Solar Integrated and SMA Solar

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

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

Diversification Opportunities for Solar Integrated and SMA Solar

0.18

Correlation Coefficient

Solar Integrated  SMA Solar

Average diversification

The 3 months correlation between Solar and SMA is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Solar Integrated Roofing 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 Solar Integrated 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 Solar Integrated Roofing 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 Solar Integrated i.e., Solar Integrated and SMA Solar go up and down completely randomly.

Pair Corralation between Solar Integrated and SMA Solar

Given the investment horizon of 90 days Solar Integrated Roofing is expected to generate 20.9 times more return on investment than SMA Solar. However, Solar Integrated is 20.9 times more volatile than SMA Solar Technology. It trades about 0.13 of its potential returns per unit of risk. SMA Solar Technology is currently generating about -0.17 per unit of risk. If you would invest  0.01  in Solar Integrated Roofing on September 15, 2024 and sell it today you would earn a total of  0.00  from holding Solar Integrated Roofing or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.21%
Values	Daily Returns

Solar Integrated Roofing  vs.  SMA Solar Technology

Solar Integrated Roofing

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Solar Integrated Roofing are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Solar Integrated exhibited solid returns over the last few months and may actually be approaching a breakup point.

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology 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 technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Solar Integrated and SMA Solar

The main advantage of trading using opposite Solar Integrated and SMA Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solar Integrated 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 Solar Integrated Roofing 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.