Correlation Between Transport and SMC Investment

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

By analyzing existing cross correlation between Transport and Industry and SMC Investment Trading, you can compare the effects of market volatilities on Transport and SMC Investment 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 Transport with a short position of SMC Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Transport and SMC Investment.

Diversification Opportunities for Transport and SMC Investment

-0.21

Correlation Coefficient

Transport  SMC Investment

Very good diversification

The 3 months correlation between Transport and SMC is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Transport and Industry and SMC Investment Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Investment Trading and Transport 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 Transport and Industry are associated (or correlated) with SMC Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMC Investment Trading has no effect on the direction of Transport i.e., Transport and SMC Investment go up and down completely randomly.

Pair Corralation between Transport and SMC Investment

Assuming the 90 days trading horizon Transport is expected to generate 38.7 times less return on investment than SMC Investment. But when comparing it to its historical volatility, Transport and Industry is 2.41 times less risky than SMC Investment. It trades about 0.02 of its potential returns per unit of risk. SMC Investment Trading is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  668,000  in SMC Investment Trading on October 5, 2024 and sell it today you would earn a total of  174,000  from holding SMC Investment Trading or generate 26.05% return on investment over 90 days.

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

Transport and Industry  vs.  SMC Investment Trading

Transport and Industry

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transport and Industry has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

SMC Investment Trading

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SMC Investment Trading are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, SMC Investment displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transport and SMC Investment

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

The idea behind Transport and Industry and SMC Investment Trading 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.