Correlation Between SMA Solar and Solar Integrated

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

Diversification Opportunities for SMA Solar and Solar Integrated

0.17

Correlation Coefficient

SMA Solar  Solar Integrated

Average diversification

The 3 months correlation between SMA and Solar is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Solar Integrated Roofing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar Integrated Roofing 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 Solar Integrated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar Integrated Roofing has no effect on the direction of SMA Solar i.e., SMA Solar and Solar Integrated go up and down completely randomly.

Pair Corralation between SMA Solar and Solar Integrated

Assuming the 90 days horizon SMA Solar Technology is expected to under-perform the Solar Integrated. But the pink sheet apears to be less risky and, when comparing its historical volatility, SMA Solar Technology is 32.51 times less risky than Solar Integrated. The pink sheet trades about -0.09 of its potential returns per unit of risk. The Solar Integrated Roofing is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Solar Integrated Roofing on September 15, 2024 and sell it today you would earn a total of  0.00  from holding Solar Integrated Roofing or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

SMA Solar Technology  vs.  Solar Integrated Roofing

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 fragile 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.

Solar Integrated Roofing

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Solar Integrated Roofing are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Solar Integrated exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SMA Solar and Solar Integrated

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

The idea behind SMA Solar Technology and Solar Integrated Roofing 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.