Correlation Between Train Alliance and Smart Eye

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

By analyzing existing cross correlation between Train Alliance Sweden and Smart Eye AB, you can compare the effects of market volatilities on Train Alliance and Smart Eye 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 Train Alliance with a short position of Smart Eye. Check out your portfolio center. Please also check ongoing floating volatility patterns of Train Alliance and Smart Eye.

Diversification Opportunities for Train Alliance and Smart Eye

0.29

Correlation Coefficient

Train Alliance  Smart Eye

Modest diversification

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

Pair Corralation between Train Alliance and Smart Eye

Assuming the 90 days trading horizon Train Alliance Sweden is expected to generate 0.66 times more return on investment than Smart Eye. However, Train Alliance Sweden is 1.51 times less risky than Smart Eye. It trades about -0.03 of its potential returns per unit of risk. Smart Eye AB is currently generating about -0.03 per unit of risk. If you would invest  1,960  in Train Alliance Sweden on October 17, 2024 and sell it today you would lose (45.00) from holding Train Alliance Sweden or give up 2.3% of portfolio value over 90 days.

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

Train Alliance Sweden  vs.  Smart Eye AB

Train Alliance Sweden

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Train Alliance Sweden has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, Train Alliance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Smart Eye AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smart Eye AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Train Alliance and Smart Eye

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

The idea behind Train Alliance Sweden and Smart Eye AB 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.