Correlation Between Allhome Corp and SM Investments

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

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

Diversification Opportunities for Allhome Corp and SM Investments

0.52

Correlation Coefficient

Allhome Corp  SM Investments

Very weak diversification

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

Pair Corralation between Allhome Corp and SM Investments

Assuming the 90 days trading horizon Allhome Corp is expected to under-perform the SM Investments. But the stock apears to be less risky and, when comparing its historical volatility, Allhome Corp is 1.17 times less risky than SM Investments. The stock trades about -0.16 of its potential returns per unit of risk. The SM Investments Corp is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  91,700  in SM Investments Corp on September 13, 2024 and sell it today you would lose (3,050) from holding SM Investments Corp or give up 3.33% of portfolio value over 90 days.

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

Allhome Corp  vs.  SM Investments Corp

Allhome Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

SM Investments Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Allhome Corp and SM Investments

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

The idea behind Allhome Corp and SM Investments 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.