Correlation Between SMA Solar and Nextracker

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

By analyzing existing cross correlation between SMA Solar Technology and Nextracker Class A, you can compare the effects of market volatilities on SMA Solar and Nextracker 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 SMA Solar with a short position of Nextracker. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA Solar and Nextracker.

Diversification Opportunities for SMA Solar and Nextracker

-0.64

Correlation Coefficient

SMA Solar  Nextracker

Excellent diversification

The 3 months correlation between SMA and Nextracker is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Nextracker Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextracker Class A and SMA Solar 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 SMA Solar Technology are associated (or correlated) with Nextracker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextracker Class A has no effect on the direction of SMA Solar i.e., SMA Solar and Nextracker go up and down completely randomly.

Pair Corralation between SMA Solar and Nextracker

Assuming the 90 days horizon SMA Solar Technology is expected to under-perform the Nextracker. In addition to that, SMA Solar is 1.11 times more volatile than Nextracker Class A. It trades about -0.02 of its total potential returns per unit of risk. Nextracker Class A is currently generating about 0.13 per unit of volatility. If you would invest  3,684  in Nextracker Class A on December 26, 2024 and sell it today you would earn a total of  919.00  from holding Nextracker Class A or generate 24.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	90.16%
Values	Daily Returns

SMA Solar Technology  vs.  Nextracker Class A

SMA Solar Technology

Risk-Adjusted Performance

Very Weak

Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, SMA Solar is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Nextracker Class A

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nextracker Class A are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Nextracker unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SMA Solar and Nextracker

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

The idea behind SMA Solar Technology and Nextracker Class A 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.