Correlation Between SM Investments and Suntrust Home

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

Diversification Opportunities for SM Investments and Suntrust Home

-0.35

Correlation Coefficient

SM Investments  Suntrust Home

Very good diversification

The 3 months correlation between SM Investments and Suntrust is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding SM Investments Corp and Suntrust Home Developers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Suntrust Home Developers 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 Suntrust Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Suntrust Home Developers has no effect on the direction of SM Investments i.e., SM Investments and Suntrust Home go up and down completely randomly.

Pair Corralation between SM Investments and Suntrust Home

Assuming the 90 days trading horizon SM Investments Corp is expected to generate 0.84 times more return on investment than Suntrust Home. However, SM Investments Corp is 1.19 times less risky than Suntrust Home. It trades about -0.01 of its potential returns per unit of risk. Suntrust Home Developers is currently generating about -0.04 per unit of risk. If you would invest  89,550  in SM Investments Corp on September 2, 2024 and sell it today you would lose (2,050) from holding SM Investments Corp or give up 2.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.15%
Values	Daily Returns

SM Investments Corp  vs.  Suntrust Home Developers

SM Investments Corp

Risk-Adjusted Performance

0 of 100

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 rather sound basic indicators, SM Investments is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Suntrust Home Developers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Suntrust Home Developers has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Suntrust Home is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SM Investments and Suntrust Home

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

The idea behind SM Investments Corp and Suntrust Home Developers 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.