Correlation Between Smithson Investment and Nationwide Building

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

Diversification Opportunities for Smithson Investment and Nationwide Building

0.27

Correlation Coefficient

Smithson Investment  Nationwide Building

Modest diversification

The 3 months correlation between Smithson and Nationwide is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Smithson Investment Trust and Nationwide Building Society in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Building 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 Nationwide Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Building has no effect on the direction of Smithson Investment i.e., Smithson Investment and Nationwide Building go up and down completely randomly.

Pair Corralation between Smithson Investment and Nationwide Building

Assuming the 90 days trading horizon Smithson Investment is expected to generate 1.55 times less return on investment than Nationwide Building. In addition to that, Smithson Investment is 3.82 times more volatile than Nationwide Building Society. It trades about 0.01 of its total potential returns per unit of risk. Nationwide Building Society is currently generating about 0.05 per unit of volatility. If you would invest  13,200  in Nationwide Building Society on December 4, 2024 and sell it today you would earn a total of  100.00  from holding Nationwide Building Society or generate 0.76% return on investment over 90 days.

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

Smithson Investment Trust  vs.  Nationwide Building Society

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.

Nationwide Building

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nationwide Building Society 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, Nationwide Building 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 Nationwide Building

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

The idea behind Smithson Investment Trust and Nationwide Building Society 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.