Correlation Between SM Investments and HE Equipment

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

By analyzing existing cross correlation between SM Investments and HE Equipment Services, you can compare the effects of market volatilities on SM Investments and HE Equipment 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 SM Investments with a short position of HE Equipment. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Investments and HE Equipment.

Diversification Opportunities for SM Investments and HE Equipment

-0.02

Correlation Coefficient

SM Investments  HE Equipment

Good diversification

The 3 months correlation between SVTMF and HEES is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding SM Investments and HE Equipment Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HE Equipment Services and SM Investments 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 SM Investments are associated (or correlated) with HE Equipment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HE Equipment Services has no effect on the direction of SM Investments i.e., SM Investments and HE Equipment go up and down completely randomly.

Pair Corralation between SM Investments and HE Equipment

Assuming the 90 days horizon SM Investments is expected to under-perform the HE Equipment. But the pink sheet apears to be less risky and, when comparing its historical volatility, SM Investments is 8.94 times less risky than HE Equipment. The pink sheet trades about -0.2 of its potential returns per unit of risk. The HE Equipment Services is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  4,921  in HE Equipment Services on December 19, 2024 and sell it today you would earn a total of  4,460  from holding HE Equipment Services or generate 90.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	86.44%
Values	Daily Returns

SM Investments  vs.  HE Equipment Services

SM Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days SM Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

HE Equipment Services

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, HE Equipment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Investments and HE Equipment

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

The idea behind SM Investments and HE Equipment Services 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 Stocks Directory module to find actively traded stocks across global markets.