Correlation Between Willis Lease and SM Investments

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

By analyzing existing cross correlation between Willis Lease Finance and SM Investments, you can compare the effects of market volatilities on Willis Lease and SM Investments 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 Willis Lease with a short position of SM Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Willis Lease and SM Investments.

Diversification Opportunities for Willis Lease and SM Investments

0.13

Correlation Coefficient

Willis Lease  SM Investments

Average diversification

The 3 months correlation between Willis and SVTMF is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Willis Lease Finance and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments and Willis Lease 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 Willis Lease Finance are associated (or correlated) with SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of Willis Lease i.e., Willis Lease and SM Investments go up and down completely randomly.

Pair Corralation between Willis Lease and SM Investments

Given the investment horizon of 90 days Willis Lease Finance is expected to under-perform the SM Investments. In addition to that, Willis Lease is 1.98 times more volatile than SM Investments. It trades about -0.15 of its total potential returns per unit of risk. SM Investments is currently generating about -0.24 per unit of volatility. If you would invest  1,640  in SM Investments on October 26, 2024 and sell it today you would lose (99.00) from holding SM Investments or give up 6.04% of portfolio value over 90 days.

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

Willis Lease Finance  vs.  SM Investments

Willis Lease Finance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Willis Lease Finance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Willis Lease exhibited solid returns over the last few months and may actually be approaching a breakup point.

SM Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SM Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Willis Lease and SM Investments

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

The idea behind Willis Lease Finance and SM Investments 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.