Correlation Between Smiths Group and Ballard Power

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

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

Diversification Opportunities for Smiths Group and Ballard Power

-0.8

Correlation Coefficient

Smiths Group  Ballard Power

Pay attention - limited upside

The 3 months correlation between Smiths and Ballard is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Smiths Group Plc and Ballard Power Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ballard Power Systems and Smiths Group 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 Smiths Group Plc are associated (or correlated) with Ballard Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ballard Power Systems has no effect on the direction of Smiths Group i.e., Smiths Group and Ballard Power go up and down completely randomly.

Pair Corralation between Smiths Group and Ballard Power

Assuming the 90 days horizon Smiths Group Plc is expected to generate 0.45 times more return on investment than Ballard Power. However, Smiths Group Plc is 2.24 times less risky than Ballard Power. It trades about 0.15 of its potential returns per unit of risk. Ballard Power Systems is currently generating about -0.12 per unit of risk. If you would invest  2,160  in Smiths Group Plc on December 29, 2024 and sell it today you would earn a total of  398.00  from holding Smiths Group Plc or generate 18.43% return on investment over 90 days.

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

Smiths Group Plc  vs.  Ballard Power Systems

Smiths Group Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smiths Group Plc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Smiths Group showed solid returns over the last few months and may actually be approaching a breakup point.

Ballard Power Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ballard Power Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's fundamental indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Smiths Group and Ballard Power

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

The idea behind Smiths Group Plc and Ballard Power Systems 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.