Correlation Between Target Hospitality and SM Investments

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

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

Diversification Opportunities for Target Hospitality and SM Investments

0.56

Correlation Coefficient

Target Hospitality  SM Investments

Very weak diversification

The 3 months correlation between Target and SVTMF is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Target Hospitality Corp and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments and Target Hospitality 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 Target Hospitality Corp are associated (or correlated) with SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of Target Hospitality i.e., Target Hospitality and SM Investments go up and down completely randomly.

Pair Corralation between Target Hospitality and SM Investments

Allowing for the 90-day total investment horizon Target Hospitality Corp is expected to generate 1.27 times more return on investment than SM Investments. However, Target Hospitality is 1.27 times more volatile than SM Investments. It trades about 0.13 of its potential returns per unit of risk. SM Investments is currently generating about 0.07 per unit of risk. If you would invest  774.00  in Target Hospitality Corp on October 10, 2024 and sell it today you would earn a total of  174.00  from holding Target Hospitality Corp or generate 22.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Target Hospitality Corp  vs.  SM Investments

Target Hospitality Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Target Hospitality Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal technical indicators, Target Hospitality demonstrated solid returns over the last few months and may actually be approaching a breakup point.

SM Investments

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, SM Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Target Hospitality and SM Investments

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

The idea behind Target Hospitality Corp and SM Investments 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.