Correlation Between Smith AO and Siemens AG

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

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

Diversification Opportunities for Smith AO and Siemens AG

0.26

Correlation Coefficient

Smith AO  Siemens AG

Modest diversification

The 3 months correlation between Smith and Siemens is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Smith AO and Siemens AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siemens AG ADR 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 Siemens AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siemens AG ADR has no effect on the direction of Smith AO i.e., Smith AO and Siemens AG go up and down completely randomly.

Pair Corralation between Smith AO and Siemens AG

Considering the 90-day investment horizon Smith AO is expected to generate 9.07 times less return on investment than Siemens AG. In addition to that, Smith AO is 1.19 times more volatile than Siemens AG ADR. It trades about 0.03 of its total potential returns per unit of risk. Siemens AG ADR is currently generating about 0.34 per unit of volatility. If you would invest  6,927  in Siemens AG ADR on September 24, 2024 and sell it today you would earn a total of  908.00  from holding Siemens AG ADR or generate 13.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	5.42%
Values	Daily Returns

Smith AO  vs.  Siemens AG ADR

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 abnormal performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Siemens AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Siemens AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Siemens AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Smith AO and Siemens AG

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

The idea behind Smith AO and Siemens AG ADR 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.