Correlation Between SMC Investment and Cotec Construction

Can any of the company-specific risk be diversified away by investing in both SMC Investment and Cotec Construction 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 Cotec Construction 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 Cotec Construction JSC, you can compare the effects of market volatilities on SMC Investment and Cotec Construction 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 Cotec Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMC Investment and Cotec Construction.

Diversification Opportunities for SMC Investment and Cotec Construction

-0.37

Correlation Coefficient

SMC Investment  Cotec Construction

Very good diversification

The 3 months correlation between SMC and Cotec is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding SMC Investment Trading and Cotec Construction JSC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cotec Construction JSC 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 Cotec Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cotec Construction JSC has no effect on the direction of SMC Investment i.e., SMC Investment and Cotec Construction go up and down completely randomly.

Pair Corralation between SMC Investment and Cotec Construction

Assuming the 90 days trading horizon SMC Investment Trading is expected to generate 2.9 times more return on investment than Cotec Construction. However, SMC Investment is 2.9 times more volatile than Cotec Construction JSC. It trades about 0.13 of its potential returns per unit of risk. Cotec Construction JSC is currently generating about 0.11 per unit of risk. If you would invest  697,000  in SMC Investment Trading on September 19, 2024 and sell it today you would earn a total of  51,000  from holding SMC Investment Trading or generate 7.32% return on investment over 90 days.

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

SMC Investment Trading  vs.  Cotec Construction JSC

SMC Investment Trading

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMC Investment Trading has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, SMC Investment is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Cotec Construction JSC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cotec Construction JSC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cotec Construction may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SMC Investment and Cotec Construction

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

The idea behind SMC Investment Trading and Cotec Construction JSC 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.