Correlation Between Vistra Energy and SMA Solar

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

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

Diversification Opportunities for Vistra Energy and SMA Solar

-0.03

Correlation Coefficient

Vistra Energy  SMA Solar

Good diversification

The 3 months correlation between Vistra and SMA is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Vistra Energy Corp 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 Vistra Energy 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 Vistra Energy Corp 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 Vistra Energy i.e., Vistra Energy and SMA Solar go up and down completely randomly.

Pair Corralation between Vistra Energy and SMA Solar

Considering the 90-day investment horizon Vistra Energy Corp is expected to generate 1.59 times more return on investment than SMA Solar. However, Vistra Energy is 1.59 times more volatile than SMA Solar Technology. It trades about 0.01 of its potential returns per unit of risk. SMA Solar Technology is currently generating about -0.02 per unit of risk. If you would invest  14,386  in Vistra Energy Corp on December 26, 2024 and sell it today you would lose (1,205) from holding Vistra Energy Corp or give up 8.38% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.67%
Values	Daily Returns

Vistra Energy Corp  vs.  SMA Solar Technology

Vistra Energy Corp

Risk-Adjusted Performance

Very Weak

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

SMA Solar Technology

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Vistra Energy and SMA Solar

The main advantage of trading using opposite Vistra Energy and SMA Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vistra Energy 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 Vistra Energy Corp 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.