Correlation Between Tenaris SA and SMG Industries

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

By analyzing existing cross correlation between Tenaris SA ADR and SMG Industries, you can compare the effects of market volatilities on Tenaris SA and SMG Industries 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 Tenaris SA with a short position of SMG Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tenaris SA and SMG Industries.

Diversification Opportunities for Tenaris SA and SMG Industries

-0.18

Correlation Coefficient

Tenaris SA  SMG Industries

Good diversification

The 3 months correlation between Tenaris and SMG is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Tenaris SA ADR and SMG Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMG Industries and Tenaris SA 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 Tenaris SA ADR are associated (or correlated) with SMG Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMG Industries has no effect on the direction of Tenaris SA i.e., Tenaris SA and SMG Industries go up and down completely randomly.

Pair Corralation between Tenaris SA and SMG Industries

Allowing for the 90-day total investment horizon Tenaris SA ADR is expected to under-perform the SMG Industries. But the stock apears to be less risky and, when comparing its historical volatility, Tenaris SA ADR is 17.66 times less risky than SMG Industries. The stock trades about -0.01 of its potential returns per unit of risk. The SMG Industries is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  0.02  in SMG Industries on December 2, 2024 and sell it today you would earn a total of  0.09  from holding SMG Industries or generate 450.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Tenaris SA ADR  vs.  SMG Industries

Tenaris SA ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tenaris SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Tenaris SA is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

SMG Industries

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SMG Industries are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, SMG Industries demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tenaris SA and SMG Industries

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

The idea behind Tenaris SA ADR and SMG Industries 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.