Correlation Between SMA Solar and Tower Semiconductor

Can any of the company-specific risk be diversified away by investing in both SMA Solar and Tower Semiconductor 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 Tower Semiconductor 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 Tower Semiconductor, you can compare the effects of market volatilities on SMA Solar and Tower Semiconductor 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 Tower Semiconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA Solar and Tower Semiconductor.

Diversification Opportunities for SMA Solar and Tower Semiconductor

-0.64

Correlation Coefficient

SMA Solar  Tower Semiconductor

Excellent diversification

The 3 months correlation between SMA and Tower is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Tower Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tower Semiconductor 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 Tower Semiconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tower Semiconductor has no effect on the direction of SMA Solar i.e., SMA Solar and Tower Semiconductor go up and down completely randomly.

Pair Corralation between SMA Solar and Tower Semiconductor

Assuming the 90 days horizon SMA Solar Technology is expected to under-perform the Tower Semiconductor. In addition to that, SMA Solar is 1.3 times more volatile than Tower Semiconductor. It trades about -0.06 of its total potential returns per unit of risk. Tower Semiconductor is currently generating about 0.12 per unit of volatility. If you would invest  3,901  in Tower Semiconductor on September 26, 2024 and sell it today you would earn a total of  928.00  from holding Tower Semiconductor or generate 23.79% return on investment over 90 days.

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

SMA Solar Technology  vs.  Tower Semiconductor

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.

Tower Semiconductor

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with SMA Solar and Tower Semiconductor

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

The idea behind SMA Solar Technology and Tower Semiconductor 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.