Correlation Between Playtech Plc and SM Investments

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

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

Diversification Opportunities for Playtech Plc and SM Investments

0.71

Correlation Coefficient

Playtech Plc  SM Investments

Poor diversification

The 3 months correlation between Playtech and SVTMF is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Playtech plc and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments and Playtech Plc 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 Playtech plc 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 has no effect on the direction of Playtech Plc i.e., Playtech Plc and SM Investments go up and down completely randomly.

Pair Corralation between Playtech Plc and SM Investments

Assuming the 90 days horizon Playtech plc is expected to under-perform the SM Investments. In addition to that, Playtech Plc is 1.25 times more volatile than SM Investments. It trades about -0.05 of its total potential returns per unit of risk. SM Investments is currently generating about 0.22 per unit of volatility. If you would invest  1,600  in SM Investments on September 26, 2024 and sell it today you would earn a total of  40.00  from holding SM Investments or generate 2.5% return on investment over 90 days.

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

Playtech plc  vs.  SM Investments

Playtech plc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Playtech plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental indicators, Playtech Plc reported solid returns over the last few months and may actually be approaching a breakup point.

SM Investments

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain primary indicators, SM Investments reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Playtech Plc and SM Investments

The main advantage of trading using opposite Playtech Plc and SM Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Playtech Plc 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 Playtech plc and SM Investments 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.