Correlation Between Smith Wesson and Ducommun Incorporated

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

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

Diversification Opportunities for Smith Wesson and Ducommun Incorporated

0.29

Correlation Coefficient

Smith Wesson  Ducommun Incorporated

Modest diversification

The 3 months correlation between Smith and Ducommun is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Smith Wesson Brands and Ducommun Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ducommun Incorporated and Smith Wesson 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 Smith Wesson Brands are associated (or correlated) with Ducommun Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ducommun Incorporated has no effect on the direction of Smith Wesson i.e., Smith Wesson and Ducommun Incorporated go up and down completely randomly.

Pair Corralation between Smith Wesson and Ducommun Incorporated

Given the investment horizon of 90 days Smith Wesson Brands is expected to under-perform the Ducommun Incorporated. In addition to that, Smith Wesson is 1.27 times more volatile than Ducommun Incorporated. It trades about -0.02 of its total potential returns per unit of risk. Ducommun Incorporated is currently generating about -0.01 per unit of volatility. If you would invest  6,085  in Ducommun Incorporated on December 27, 2024 and sell it today you would lose (99.00) from holding Ducommun Incorporated or give up 1.63% of portfolio value over 90 days.

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

Smith Wesson Brands  vs.  Ducommun Incorporated

Smith Wesson Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smith Wesson Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Smith Wesson is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Ducommun Incorporated

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ducommun Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Ducommun Incorporated is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Smith Wesson and Ducommun Incorporated

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

The idea behind Smith Wesson Brands and Ducommun Incorporated 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.