Correlation Between SM Investments and Liberty Flour

Can any of the company-specific risk be diversified away by investing in both SM Investments and Liberty Flour 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 Liberty Flour 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 Liberty Flour Mills, you can compare the effects of market volatilities on SM Investments and Liberty Flour 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 Liberty Flour. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Investments and Liberty Flour.

Diversification Opportunities for SM Investments and Liberty Flour

0.07

Correlation Coefficient

SM Investments  Liberty Flour

Significant diversification

The 3 months correlation between SM Investments and Liberty is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding SM Investments Corp and Liberty Flour Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Flour Mills 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 Liberty Flour. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Flour Mills has no effect on the direction of SM Investments i.e., SM Investments and Liberty Flour go up and down completely randomly.

Pair Corralation between SM Investments and Liberty Flour

Assuming the 90 days trading horizon SM Investments Corp is expected to under-perform the Liberty Flour. But the stock apears to be less risky and, when comparing its historical volatility, SM Investments Corp is 3.87 times less risky than Liberty Flour. The stock trades about -0.09 of its potential returns per unit of risk. The Liberty Flour Mills is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,629  in Liberty Flour Mills on December 26, 2024 and sell it today you would lose (29.00) from holding Liberty Flour Mills or give up 1.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	86.67%
Values	Daily Returns

SM Investments Corp  vs.  Liberty Flour Mills

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.

Liberty Flour Mills

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Flour Mills are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Liberty Flour may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with SM Investments and Liberty Flour

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

The idea behind SM Investments Corp and Liberty Flour Mills 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.