Correlation Between Siemens Energy and Smiths Group

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

By analyzing existing cross correlation between Siemens Energy AG and Smiths Group Plc, you can compare the effects of market volatilities on Siemens Energy and Smiths Group 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 Siemens Energy with a short position of Smiths Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Siemens Energy and Smiths Group.

Diversification Opportunities for Siemens Energy and Smiths Group

-0.49

Correlation Coefficient

Siemens Energy  Smiths Group

Very good diversification

The 3 months correlation between Siemens and Smiths is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Siemens Energy AG and Smiths Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smiths Group Plc and Siemens Energy 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 Siemens Energy AG are associated (or correlated) with Smiths Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smiths Group Plc has no effect on the direction of Siemens Energy i.e., Siemens Energy and Smiths Group go up and down completely randomly.

Pair Corralation between Siemens Energy and Smiths Group

Assuming the 90 days horizon Siemens Energy AG is expected to generate 1.36 times more return on investment than Smiths Group. However, Siemens Energy is 1.36 times more volatile than Smiths Group Plc. It trades about 0.36 of its potential returns per unit of risk. Smiths Group Plc is currently generating about 0.01 per unit of risk. If you would invest  2,826  in Siemens Energy AG on August 31, 2024 and sell it today you would earn a total of  2,664  from holding Siemens Energy AG or generate 94.27% return on investment over 90 days.

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

Siemens Energy AG  vs.  Smiths Group Plc

Siemens Energy AG

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Siemens Energy AG are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Siemens Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Smiths Group Plc

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Smiths Group Plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Smiths Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Siemens Energy and Smiths Group

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

The idea behind Siemens Energy AG and Smiths Group Plc 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.