Correlation Between SMC Investment and South Basic

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

By analyzing existing cross correlation between SMC Investment Trading and South Basic Chemicals, you can compare the effects of market volatilities on SMC Investment and South Basic 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 SMC Investment with a short position of South Basic. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMC Investment and South Basic.

Diversification Opportunities for SMC Investment and South Basic

0.82

Correlation Coefficient

SMC Investment  South Basic

Very poor diversification

The 3 months correlation between SMC and South is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding SMC Investment Trading and South Basic Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Basic Chemicals and SMC Investment 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 SMC Investment Trading are associated (or correlated) with South Basic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Basic Chemicals has no effect on the direction of SMC Investment i.e., SMC Investment and South Basic go up and down completely randomly.

Pair Corralation between SMC Investment and South Basic

Assuming the 90 days trading horizon SMC Investment Trading is expected to generate 1.4 times more return on investment than South Basic. However, SMC Investment is 1.4 times more volatile than South Basic Chemicals. It trades about 0.26 of its potential returns per unit of risk. South Basic Chemicals is currently generating about 0.14 per unit of risk. If you would invest  684,000  in SMC Investment Trading on October 8, 2024 and sell it today you would earn a total of  127,000  from holding SMC Investment Trading or generate 18.57% return on investment over 90 days.

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

SMC Investment Trading  vs.  South Basic Chemicals

SMC Investment Trading

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SMC Investment Trading are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, SMC Investment displayed solid returns over the last few months and may actually be approaching a breakup point.

South Basic Chemicals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in South Basic Chemicals are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, South Basic displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SMC Investment and South Basic

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

The idea behind SMC Investment Trading and South Basic Chemicals 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.