Correlation Between Fanuc and SMC Corp

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

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

Diversification Opportunities for Fanuc and SMC Corp

0.7

Correlation Coefficient

Fanuc  SMC Corp

Poor diversification

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

Pair Corralation between Fanuc and SMC Corp

Assuming the 90 days horizon Fanuc is expected to under-perform the SMC Corp. But the pink sheet apears to be less risky and, when comparing its historical volatility, Fanuc is 1.16 times less risky than SMC Corp. The pink sheet trades about -0.14 of its potential returns per unit of risk. The SMC Corp is currently generating about -0.1 of returns per unit of risk over similar time horizon. If you would invest  44,761  in SMC Corp on September 28, 2024 and sell it today you would lose (4,897) from holding SMC Corp or give up 10.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Fanuc  vs.  SMC Corp

Fanuc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fanuc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

SMC Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMC Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Fanuc and SMC Corp

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

The idea behind Fanuc and SMC Corp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.