Correlation Between T M and Smith Micro

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

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

Diversification Opportunities for T M and Smith Micro

0.33

Correlation Coefficient

T M  Smith Micro

Weak diversification

The 3 months correlation between TMMI and Smith is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding T M M and Smith Micro Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Micro Software and T M 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 T M M are associated (or correlated) with Smith Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Micro Software has no effect on the direction of T M i.e., T M and Smith Micro go up and down completely randomly.

Pair Corralation between T M and Smith Micro

Given the investment horizon of 90 days T M is expected to generate 1.72 times less return on investment than Smith Micro. In addition to that, T M is 2.47 times more volatile than Smith Micro Software. It trades about 0.08 of its total potential returns per unit of risk. Smith Micro Software is currently generating about 0.35 per unit of volatility. If you would invest  86.00  in Smith Micro Software on September 29, 2024 and sell it today you would earn a total of  76.00  from holding Smith Micro Software or generate 88.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

T M M  vs.  Smith Micro Software

T M M

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in T M M are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal primary indicators, T M demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Smith Micro Software

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with T M and Smith Micro

The main advantage of trading using opposite T M and Smith Micro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if T M position performs unexpectedly, Smith Micro 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 Smith Micro will offset losses from the drop in Smith Micro's long position.

The idea behind T M M and Smith Micro Software 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.