Correlation Between Air Products and Smith Douglas

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

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

Diversification Opportunities for Air Products and Smith Douglas

-0.52

Correlation Coefficient

Air Products  Smith Douglas

Excellent diversification

The 3 months correlation between Air and Smith is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Air Products and and Smith Douglas Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Douglas Homes and Air Products 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 Air Products and are associated (or correlated) with Smith Douglas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Douglas Homes has no effect on the direction of Air Products i.e., Air Products and Smith Douglas go up and down completely randomly.

Pair Corralation between Air Products and Smith Douglas

Considering the 90-day investment horizon Air Products and is expected to under-perform the Smith Douglas. But the stock apears to be less risky and, when comparing its historical volatility, Air Products and is 2.18 times less risky than Smith Douglas. The stock trades about -0.02 of its potential returns per unit of risk. The Smith Douglas Homes is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,105  in Smith Douglas Homes on September 14, 2024 and sell it today you would earn a total of  195.00  from holding Smith Douglas Homes or generate 6.28% return on investment over 90 days.

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

Air Products and  vs.  Smith Douglas Homes

Air Products

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Air Products may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Smith Douglas is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Air Products and Smith Douglas

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

The idea behind Air Products and and Smith Douglas Homes 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.