Correlation Between Smithson Investment and 3I Group

Can any of the company-specific risk be diversified away by investing in both Smithson Investment and 3I Group 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 3I Group 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 3I Group PLC, you can compare the effects of market volatilities on Smithson Investment and 3I Group 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 3I Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smithson Investment and 3I Group.

Diversification Opportunities for Smithson Investment and 3I Group

0.87

Correlation Coefficient

Smithson Investment  3I Group

Very poor diversification

The 3 months correlation between Smithson and III is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Smithson Investment Trust and 3I Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 3I Group PLC 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 3I Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 3I Group PLC has no effect on the direction of Smithson Investment i.e., Smithson Investment and 3I Group go up and down completely randomly.

Pair Corralation between Smithson Investment and 3I Group

Assuming the 90 days trading horizon Smithson Investment Trust is expected to under-perform the 3I Group. But the stock apears to be less risky and, when comparing its historical volatility, Smithson Investment Trust is 1.48 times less risky than 3I Group. The stock trades about -0.02 of its potential returns per unit of risk. The 3I Group PLC is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  355,600  in 3I Group PLC on December 22, 2024 and sell it today you would earn a total of  15,700  from holding 3I Group PLC or generate 4.42% return on investment over 90 days.

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

Smithson Investment Trust  vs.  3I Group PLC

Smithson Investment Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smithson Investment Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Smithson Investment is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

3I Group PLC

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in 3I Group PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, 3I Group is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Smithson Investment and 3I Group

The main advantage of trading using opposite Smithson Investment and 3I Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smithson Investment position performs unexpectedly, 3I Group 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 3I Group will offset losses from the drop in 3I Group's long position.

The idea behind Smithson Investment Trust and 3I Group PLC 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 Global Correlations module to find global opportunities by holding instruments from different markets.