Correlation Between Smith AO and WEG SA

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

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

Diversification Opportunities for Smith AO and WEG SA

0.71

Correlation Coefficient

Smith AO  WEG SA

Poor diversification

The 3 months correlation between Smith and WEG is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Smith AO and WEG SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEG SA 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 WEG SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEG SA ADR has no effect on the direction of Smith AO i.e., Smith AO and WEG SA go up and down completely randomly.

Pair Corralation between Smith AO and WEG SA

Considering the 90-day investment horizon Smith AO is expected to under-perform the WEG SA. But the stock apears to be less risky and, when comparing its historical volatility, Smith AO is 1.32 times less risky than WEG SA. The stock trades about -0.1 of its potential returns per unit of risk. The WEG SA ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  959.00  in WEG SA ADR on September 12, 2024 and sell it today you would earn a total of  24.00  from holding WEG SA ADR or generate 2.5% return on investment over 90 days.

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

Smith AO  vs.  WEG SA 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 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.

WEG SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Smith AO and WEG SA

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

The idea behind Smith AO and WEG SA 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.