Correlation Between SMA Solar and Coffee Holding

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

By analyzing existing cross correlation between SMA Solar Technology and Coffee Holding Co, you can compare the effects of market volatilities on SMA Solar and Coffee Holding 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 SMA Solar with a short position of Coffee Holding. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA Solar and Coffee Holding.

Diversification Opportunities for SMA Solar and Coffee Holding

-0.48

Correlation Coefficient

SMA Solar  Coffee Holding

Very good diversification

The 3 months correlation between SMA and Coffee is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Coffee Holding Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coffee Holding and SMA Solar 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 SMA Solar Technology are associated (or correlated) with Coffee Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coffee Holding has no effect on the direction of SMA Solar i.e., SMA Solar and Coffee Holding go up and down completely randomly.

Pair Corralation between SMA Solar and Coffee Holding

Assuming the 90 days horizon SMA Solar Technology is expected to generate 0.83 times more return on investment than Coffee Holding. However, SMA Solar Technology is 1.21 times less risky than Coffee Holding. It trades about 0.14 of its potential returns per unit of risk. Coffee Holding Co is currently generating about 0.01 per unit of risk. If you would invest  1,179  in SMA Solar Technology on September 23, 2024 and sell it today you would earn a total of  140.00  from holding SMA Solar Technology or generate 11.87% return on investment over 90 days.

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

SMA Solar Technology  vs.  Coffee Holding Co

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Coffee Holding

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Coffee Holding reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SMA Solar and Coffee Holding

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

The idea behind SMA Solar Technology and Coffee Holding Co 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.