Correlation Between Tokyo Electric and Smart Powerr

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

By analyzing existing cross correlation between Tokyo Electric Power and Smart Powerr Corp, you can compare the effects of market volatilities on Tokyo Electric and Smart Powerr 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 Tokyo Electric with a short position of Smart Powerr. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tokyo Electric and Smart Powerr.

Diversification Opportunities for Tokyo Electric and Smart Powerr

0.21

Correlation Coefficient

Tokyo Electric  Smart Powerr

Modest diversification

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

Pair Corralation between Tokyo Electric and Smart Powerr

Assuming the 90 days horizon Tokyo Electric Power is expected to generate 1.53 times more return on investment than Smart Powerr. However, Tokyo Electric is 1.53 times more volatile than Smart Powerr Corp. It trades about 0.05 of its potential returns per unit of risk. Smart Powerr Corp is currently generating about -0.01 per unit of risk. If you would invest  315.00  in Tokyo Electric Power on December 28, 2024 and sell it today you would earn a total of  30.00  from holding Tokyo Electric Power or generate 9.52% return on investment over 90 days.

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

Tokyo Electric Power  vs.  Smart Powerr Corp

Tokyo Electric Power

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Electric Power are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Tokyo Electric reported solid returns over the last few months and may actually be approaching a breakup point.

Smart Powerr Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smart Powerr Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Smart Powerr is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Tokyo Electric and Smart Powerr

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

The idea behind Tokyo Electric Power and Smart Powerr Corp 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.