Correlation Between SMA Solar and Principal Solar

Can any of the company-specific risk be diversified away by investing in both SMA Solar and Principal Solar 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 Principal Solar 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 Principal Solar, you can compare the effects of market volatilities on SMA Solar and Principal Solar 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 Principal Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA Solar and Principal Solar.

Diversification Opportunities for SMA Solar and Principal Solar

0.65

Correlation Coefficient

SMA Solar  Principal Solar

Poor diversification

The 3 months correlation between SMA and Principal is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Principal Solar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Solar 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 Principal Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Solar has no effect on the direction of SMA Solar i.e., SMA Solar and Principal Solar go up and down completely randomly.

Pair Corralation between SMA Solar and Principal Solar

Assuming the 90 days horizon SMA Solar is expected to generate 15.7 times less return on investment than Principal Solar. But when comparing it to its historical volatility, SMA Solar Technology is 8.64 times less risky than Principal Solar. It trades about 0.14 of its potential returns per unit of risk. Principal Solar is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Principal Solar on October 22, 2024 and sell it today you would earn a total of  0.01  from holding Principal Solar or generate 100.0% return on investment over 90 days.

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

SMA Solar Technology  vs.  Principal Solar

SMA Solar Technology

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SMA Solar Technology are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Principal Solar

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with SMA Solar and Principal Solar

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

The idea behind SMA Solar Technology and Principal Solar 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.