Correlation Between Smithson Investment and Cars

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

By analyzing existing cross correlation between Smithson Investment Trust and Cars Inc, you can compare the effects of market volatilities on Smithson Investment and Cars 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 Smithson Investment with a short position of Cars. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smithson Investment and Cars.

Diversification Opportunities for Smithson Investment and Cars

0.13

Correlation Coefficient

Smithson Investment  Cars

Average diversification

The 3 months correlation between Smithson and Cars is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Smithson Investment Trust and Cars Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cars Inc and Smithson Investment 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 Smithson Investment Trust are associated (or correlated) with Cars. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cars Inc has no effect on the direction of Smithson Investment i.e., Smithson Investment and Cars go up and down completely randomly.

Pair Corralation between Smithson Investment and Cars

Assuming the 90 days trading horizon Smithson Investment is expected to generate 2.64 times less return on investment than Cars. But when comparing it to its historical volatility, Smithson Investment Trust is 3.17 times less risky than Cars. It trades about 0.18 of its potential returns per unit of risk. Cars Inc is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,710  in Cars Inc on October 25, 2024 and sell it today you would earn a total of  63.00  from holding Cars Inc or generate 3.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	47.37%
Values	Daily Returns

Smithson Investment Trust  vs.  Cars Inc

Smithson Investment Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smithson Investment Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Smithson Investment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Cars Inc

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Cars Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, Cars unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smithson Investment and Cars

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

The idea behind Smithson Investment Trust and Cars Inc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.