Correlation Between SM Investments and DL Industries

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

By analyzing existing cross correlation between SM Investments Corp and DL Industries, you can compare the effects of market volatilities on SM Investments and DL Industries 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 SM Investments with a short position of DL Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Investments and DL Industries.

Diversification Opportunities for SM Investments and DL Industries

0.08

Correlation Coefficient

SM Investments  DL Industries

Significant diversification

The 3 months correlation between SM Investments and DNL is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding SM Investments Corp and DL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DL Industries and SM Investments 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 SM Investments Corp are associated (or correlated) with DL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DL Industries has no effect on the direction of SM Investments i.e., SM Investments and DL Industries go up and down completely randomly.

Pair Corralation between SM Investments and DL Industries

Assuming the 90 days trading horizon SM Investments Corp is expected to generate 1.49 times more return on investment than DL Industries. However, SM Investments is 1.49 times more volatile than DL Industries. It trades about -0.07 of its potential returns per unit of risk. DL Industries is currently generating about -0.13 per unit of risk. If you would invest  89,000  in SM Investments Corp on December 5, 2024 and sell it today you would lose (8,200) from holding SM Investments Corp or give up 9.21% of portfolio value over 90 days.

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

SM Investments Corp  vs.  DL Industries

SM Investments Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days SM Investments Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

DL Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days DL Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with SM Investments and DL Industries

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

The idea behind SM Investments Corp and DL Industries 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.