Correlation Between TGI Solar and SMA Solar

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

By analyzing existing cross correlation between TGI Solar Power and SMA Solar Technology, you can compare the effects of market volatilities on TGI Solar and SMA Solar 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 TGI Solar with a short position of SMA Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of TGI Solar and SMA Solar.

Diversification Opportunities for TGI Solar and SMA Solar

0.04

Correlation Coefficient

TGI Solar  SMA Solar

Significant diversification

The 3 months correlation between TGI and SMA is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding TGI Solar Power and SMA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA Solar Technology and TGI Solar 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 TGI Solar Power are associated (or correlated) with SMA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA Solar Technology has no effect on the direction of TGI Solar i.e., TGI Solar and SMA Solar go up and down completely randomly.

Pair Corralation between TGI Solar and SMA Solar

Given the investment horizon of 90 days TGI Solar Power is expected to generate 2.57 times more return on investment than SMA Solar. However, TGI Solar is 2.57 times more volatile than SMA Solar Technology. It trades about 0.13 of its potential returns per unit of risk. SMA Solar Technology is currently generating about 0.17 per unit of risk. If you would invest  0.07  in TGI Solar Power on December 17, 2024 and sell it today you would earn a total of  0.06  from holding TGI Solar Power or generate 85.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

TGI Solar Power  vs.  SMA Solar Technology

TGI Solar Power

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TGI Solar Power are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, TGI Solar reported solid returns over the last few months and may actually be approaching a breakup point.

SMA Solar Technology

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SMA Solar Technology are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, SMA Solar showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TGI Solar and SMA Solar

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

The idea behind TGI Solar Power and SMA Solar Technology 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.