Correlation Between Smith AO and Graham

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

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

Diversification Opportunities for Smith AO and Graham

-0.61

Correlation Coefficient

Smith AO  Graham

Excellent diversification

The 3 months correlation between Smith and Graham is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Smith AO and Graham in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graham and Smith AO 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 Smith AO are associated (or correlated) with Graham. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Graham has no effect on the direction of Smith AO i.e., Smith AO and Graham go up and down completely randomly.

Pair Corralation between Smith AO and Graham

Considering the 90-day investment horizon Smith AO is expected to under-perform the Graham. But the stock apears to be less risky and, when comparing its historical volatility, Smith AO is 2.06 times less risky than Graham. The stock trades about -0.08 of its potential returns per unit of risk. The Graham is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,965  in Graham on September 3, 2024 and sell it today you would earn a total of  1,519  from holding Graham or generate 51.23% return on investment over 90 days.

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

Smith AO  vs.  Graham

Smith AO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith AO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Graham

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Graham are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical indicators, Graham displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smith AO and Graham

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

The idea behind Smith AO and Graham 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.