Correlation Between Petrofac and SMG Industries

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

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

Diversification Opportunities for Petrofac and SMG Industries

0.77

Correlation Coefficient

Petrofac  SMG Industries

Poor diversification

The 3 months correlation between Petrofac and SMG is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Petrofac Ltd ADR and SMG Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMG Industries and Petrofac 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 Petrofac Ltd ADR are associated (or correlated) with SMG Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMG Industries has no effect on the direction of Petrofac i.e., Petrofac and SMG Industries go up and down completely randomly.

Pair Corralation between Petrofac and SMG Industries

Assuming the 90 days horizon Petrofac Ltd ADR is expected to generate 0.78 times more return on investment than SMG Industries. However, Petrofac Ltd ADR is 1.29 times less risky than SMG Industries. It trades about -0.03 of its potential returns per unit of risk. SMG Industries is currently generating about -0.12 per unit of risk. If you would invest  9.00  in Petrofac Ltd ADR on September 17, 2024 and sell it today you would lose (3.00) from holding Petrofac Ltd ADR or give up 33.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Petrofac Ltd ADR  vs.  SMG Industries

Petrofac ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrofac Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental 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.

SMG Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMG Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Petrofac and SMG Industries

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

The idea behind Petrofac Ltd ADR and SMG Industries 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.