Correlation Between Jacobs Solutions and Smith Douglas

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

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

Diversification Opportunities for Jacobs Solutions and Smith Douglas

-0.38

Correlation Coefficient

Jacobs Solutions  Smith Douglas

Very good diversification

The 3 months correlation between Jacobs and Smith is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Jacobs Solutions and Smith Douglas Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Douglas Homes and Jacobs Solutions 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 Jacobs Solutions are associated (or correlated) with Smith Douglas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Douglas Homes has no effect on the direction of Jacobs Solutions i.e., Jacobs Solutions and Smith Douglas go up and down completely randomly.

Pair Corralation between Jacobs Solutions and Smith Douglas

Taking into account the 90-day investment horizon Jacobs Solutions is expected to generate 0.52 times more return on investment than Smith Douglas. However, Jacobs Solutions is 1.94 times less risky than Smith Douglas. It trades about 0.14 of its potential returns per unit of risk. Smith Douglas Homes is currently generating about -0.04 per unit of risk. If you would invest  12,065  in Jacobs Solutions on September 16, 2024 and sell it today you would earn a total of  1,634  from holding Jacobs Solutions or generate 13.54% return on investment over 90 days.

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

Jacobs Solutions  vs.  Smith Douglas Homes

Jacobs Solutions

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Jacobs Solutions are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak forward-looking indicators, Jacobs Solutions revealed solid returns over the last few months and may actually be approaching a breakup point.

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Jacobs Solutions and Smith Douglas

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

The idea behind Jacobs Solutions and Smith Douglas Homes 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.