Correlation Between AstraZeneca PLC and SMA Solar

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

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

Diversification Opportunities for AstraZeneca PLC and SMA Solar

0.69

Correlation Coefficient

AstraZeneca PLC  SMA Solar

Poor diversification

The 3 months correlation between AstraZeneca and SMA is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding AstraZeneca PLC 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 AstraZeneca PLC 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 AstraZeneca PLC 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 AstraZeneca PLC i.e., AstraZeneca PLC and SMA Solar go up and down completely randomly.

Pair Corralation between AstraZeneca PLC and SMA Solar

Assuming the 90 days horizon AstraZeneca PLC is expected to under-perform the SMA Solar. But the stock apears to be less risky and, when comparing its historical volatility, AstraZeneca PLC is 2.24 times less risky than SMA Solar. The stock trades about -0.06 of its potential returns per unit of risk. The SMA Solar Technology is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,655  in SMA Solar Technology on October 11, 2024 and sell it today you would lose (46.00) from holding SMA Solar Technology or give up 2.78% of portfolio value over 90 days.

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

AstraZeneca PLC  vs.  SMA Solar Technology

AstraZeneca PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

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 basic indicators, SMA Solar is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with AstraZeneca PLC and SMA Solar

The main advantage of trading using opposite AstraZeneca PLC and SMA Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AstraZeneca PLC 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 AstraZeneca PLC 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.