Correlation Between Stepstone and Smith Douglas

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

By analyzing existing cross correlation between Stepstone Group and Smith Douglas Homes, you can compare the effects of market volatilities on Stepstone and Smith Douglas 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 Stepstone with a short position of Smith Douglas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stepstone and Smith Douglas.

Diversification Opportunities for Stepstone and Smith Douglas

-0.39

Correlation Coefficient

Stepstone  Smith Douglas

Very good diversification

The 3 months correlation between Stepstone and Smith is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Smith Douglas Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Douglas Homes and Stepstone 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 Stepstone Group are associated (or correlated) with Smith Douglas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Douglas Homes has no effect on the direction of Stepstone i.e., Stepstone and Smith Douglas go up and down completely randomly.

Pair Corralation between Stepstone and Smith Douglas

Given the investment horizon of 90 days Stepstone Group is expected to under-perform the Smith Douglas. But the stock apears to be less risky and, when comparing its historical volatility, Stepstone Group is 1.24 times less risky than Smith Douglas. The stock trades about -0.24 of its potential returns per unit of risk. The Smith Douglas Homes is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  3,152  in Smith Douglas Homes on September 22, 2024 and sell it today you would lose (370.00) from holding Smith Douglas Homes or give up 11.74% of portfolio value over 90 days.

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

Stepstone Group  vs.  Smith Douglas Homes

Stepstone Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Stepstone is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Stepstone and Smith Douglas

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

The idea behind Stepstone Group and Smith Douglas Homes 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.