Correlation Between Central Asia and Smithson Investment

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

By analyzing existing cross correlation between Central Asia Metals and Smithson Investment Trust, you can compare the effects of market volatilities on Central Asia and Smithson Investment 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 Central Asia with a short position of Smithson Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Asia and Smithson Investment.

Diversification Opportunities for Central Asia and Smithson Investment

-0.61

Correlation Coefficient

Central Asia  Smithson Investment

Excellent diversification

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

Pair Corralation between Central Asia and Smithson Investment

Assuming the 90 days trading horizon Central Asia Metals is expected to under-perform the Smithson Investment. In addition to that, Central Asia is 1.78 times more volatile than Smithson Investment Trust. It trades about -0.06 of its total potential returns per unit of risk. Smithson Investment Trust is currently generating about 0.11 per unit of volatility. If you would invest  143,600  in Smithson Investment Trust on September 13, 2024 and sell it today you would earn a total of  8,000  from holding Smithson Investment Trust or generate 5.57% return on investment over 90 days.

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

Central Asia Metals  vs.  Smithson Investment Trust

Central Asia Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Asia Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Central Asia is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Smithson Investment Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smithson Investment Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Smithson Investment is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Central Asia and Smithson Investment

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

The idea behind Central Asia Metals and Smithson Investment Trust 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.