Correlation Between Baker Hughes and SMG Industries

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

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

Diversification Opportunities for Baker Hughes and SMG Industries

-0.7

Correlation Coefficient

Baker Hughes  SMG Industries

Excellent diversification

The 3 months correlation between Baker and SMG is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Baker Hughes Co and SMG Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMG Industries and Baker Hughes 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 Baker Hughes Co are associated (or correlated) with SMG Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMG Industries has no effect on the direction of Baker Hughes i.e., Baker Hughes and SMG Industries go up and down completely randomly.

Pair Corralation between Baker Hughes and SMG Industries

Considering the 90-day investment horizon Baker Hughes Co is expected to generate 0.18 times more return on investment than SMG Industries. However, Baker Hughes Co is 5.5 times less risky than SMG Industries. It trades about 0.16 of its potential returns per unit of risk. SMG Industries is currently generating about -0.12 per unit of risk. If you would invest  3,454  in Baker Hughes Co on September 17, 2024 and sell it today you would earn a total of  761.00  from holding Baker Hughes Co or generate 22.03% return on investment over 90 days.

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

Baker Hughes Co  vs.  SMG Industries

Baker Hughes

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Hughes Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting forward-looking signals, Baker Hughes reported solid returns over the last few months and may actually be approaching a breakup point.

SMG Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMG Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Baker Hughes and SMG Industries

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

The idea behind Baker Hughes Co and SMG Industries 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.