Correlation Between Essential and SMI 3Fourteen

Can any of the company-specific risk be diversified away by investing in both Essential and SMI 3Fourteen 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 Essential and SMI 3Fourteen into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Essential 40 Stock and SMI 3Fourteen Full Cycle, you can compare the effects of market volatilities on Essential and SMI 3Fourteen 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 Essential with a short position of SMI 3Fourteen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Essential and SMI 3Fourteen.

Diversification Opportunities for Essential and SMI 3Fourteen

0.17

Correlation Coefficient

Essential  SMI 3Fourteen

Average diversification

The 3 months correlation between Essential and SMI is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Essential 40 Stock and SMI 3Fourteen Full Cycle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMI 3Fourteen Full and Essential 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 Essential 40 Stock are associated (or correlated) with SMI 3Fourteen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMI 3Fourteen Full has no effect on the direction of Essential i.e., Essential and SMI 3Fourteen go up and down completely randomly.

Pair Corralation between Essential and SMI 3Fourteen

Considering the 90-day investment horizon Essential is expected to generate 1.56 times less return on investment than SMI 3Fourteen. But when comparing it to its historical volatility, Essential 40 Stock is 1.46 times less risky than SMI 3Fourteen. It trades about 0.1 of its potential returns per unit of risk. SMI 3Fourteen Full Cycle is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,569  in SMI 3Fourteen Full Cycle on September 5, 2024 and sell it today you would earn a total of  160.00  from holding SMI 3Fourteen Full Cycle or generate 6.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	50.79%
Values	Daily Returns

Essential 40 Stock  vs.  SMI 3Fourteen Full Cycle

Essential 40 Stock

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Essential 40 Stock are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Essential is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

SMI 3Fourteen Full

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SMI 3Fourteen Full Cycle are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, SMI 3Fourteen is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Essential and SMI 3Fourteen

The main advantage of trading using opposite Essential and SMI 3Fourteen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Essential position performs unexpectedly, SMI 3Fourteen 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 SMI 3Fourteen will offset losses from the drop in SMI 3Fourteen's long position.

The idea behind Essential 40 Stock and SMI 3Fourteen Full Cycle 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.