Correlation Between SMA Solar and Aurora Solar

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

Diversification Opportunities for SMA Solar and Aurora Solar

0.86

Correlation Coefficient

SMA Solar  Aurora Solar

Very poor diversification

The 3 months correlation between SMA and Aurora is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Aurora Solar Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Solar Technologies 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 Aurora Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Solar Technologies has no effect on the direction of SMA Solar i.e., SMA Solar and Aurora Solar go up and down completely randomly.

Pair Corralation between SMA Solar and Aurora Solar

Assuming the 90 days horizon SMA Solar is expected to generate 1.35 times less return on investment than Aurora Solar. But when comparing it to its historical volatility, SMA Solar Technology is 4.15 times less risky than Aurora Solar. It trades about 0.22 of its potential returns per unit of risk. Aurora Solar Technologies is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1.80  in Aurora Solar Technologies on September 16, 2024 and sell it today you would earn a total of  0.00  from holding Aurora Solar Technologies or generate 0.0% return on investment over 90 days.

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

SMA Solar Technology  vs.  Aurora Solar Technologies

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Aurora Solar Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with SMA Solar and Aurora Solar

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

The idea behind SMA Solar Technology and Aurora Solar Technologies 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.