Correlation Between Smith Midland and Butler National

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

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

Diversification Opportunities for Smith Midland and Butler National

0.71

Correlation Coefficient

Smith Midland  Butler National

Poor diversification

The 3 months correlation between Smith and Butler is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Smith Midland Corp and Butler National Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Butler National Corp and Smith Midland 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 Smith Midland Corp are associated (or correlated) with Butler National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Butler National Corp has no effect on the direction of Smith Midland i.e., Smith Midland and Butler National go up and down completely randomly.

Pair Corralation between Smith Midland and Butler National

Given the investment horizon of 90 days Smith Midland Corp is expected to generate 1.41 times more return on investment than Butler National. However, Smith Midland is 1.41 times more volatile than Butler National Corp. It trades about 0.07 of its potential returns per unit of risk. Butler National Corp is currently generating about 0.09 per unit of risk. If you would invest  1,862  in Smith Midland Corp on September 4, 2024 and sell it today you would earn a total of  3,141  from holding Smith Midland Corp or generate 168.69% return on investment over 90 days.

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

Smith Midland Corp  vs.  Butler National Corp

Smith Midland Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smith Midland Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward indicators, Smith Midland exhibited solid returns over the last few months and may actually be approaching a breakup point.

Butler National Corp

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Butler National Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward-looking signals, Butler National unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smith Midland and Butler National

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

The idea behind Smith Midland Corp and Butler National Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.