Correlation Between SMC Corp and Ebara Corp

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

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

Diversification Opportunities for SMC Corp and Ebara Corp

-0.42

Correlation Coefficient

SMC Corp  Ebara Corp

Very good diversification

The 3 months correlation between SMC and Ebara is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding SMC Corp Japan and Ebara Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ebara Corp ADR and SMC Corp 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 Corp Japan are associated (or correlated) with Ebara Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ebara Corp ADR has no effect on the direction of SMC Corp i.e., SMC Corp and Ebara Corp go up and down completely randomly.

Pair Corralation between SMC Corp and Ebara Corp

Assuming the 90 days horizon SMC Corp Japan is expected to generate 0.8 times more return on investment than Ebara Corp. However, SMC Corp Japan is 1.25 times less risky than Ebara Corp. It trades about 0.01 of its potential returns per unit of risk. Ebara Corp ADR is currently generating about -0.01 per unit of risk. If you would invest  1,949  in SMC Corp Japan on December 28, 2024 and sell it today you would lose (9.00) from holding SMC Corp Japan or give up 0.46% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

SMC Corp Japan  vs.  Ebara Corp ADR

SMC Corp Japan

Risk-Adjusted Performance

Very Weak

Over the last 90 days SMC Corp Japan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, SMC Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ebara Corp ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ebara Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Ebara Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SMC Corp and Ebara Corp

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

The idea behind SMC Corp Japan and Ebara Corp ADR 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.