Correlation Between Schneider Electric and SMC Corp

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

By analyzing existing cross correlation between Schneider Electric SA and SMC Corp Japan, you can compare the effects of market volatilities on Schneider Electric and SMC Corp 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 Schneider Electric with a short position of SMC Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schneider Electric and SMC Corp.

Diversification Opportunities for Schneider Electric and SMC Corp

0.36

Correlation Coefficient

Schneider Electric  SMC Corp

Weak diversification

The 3 months correlation between Schneider and SMC is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Schneider Electric SA and SMC Corp Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Corp Japan and Schneider Electric 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 Schneider Electric SA are associated (or correlated) with SMC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMC Corp Japan has no effect on the direction of Schneider Electric i.e., Schneider Electric and SMC Corp go up and down completely randomly.

Pair Corralation between Schneider Electric and SMC Corp

Assuming the 90 days horizon Schneider Electric SA is expected to generate 0.8 times more return on investment than SMC Corp. However, Schneider Electric SA is 1.24 times less risky than SMC Corp. It trades about 0.05 of its potential returns per unit of risk. SMC Corp Japan is currently generating about 0.02 per unit of risk. If you would invest  4,970  in Schneider Electric SA on September 4, 2024 and sell it today you would earn a total of  187.00  from holding Schneider Electric SA or generate 3.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Schneider Electric SA  vs.  SMC Corp Japan

Schneider Electric

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Schneider Electric SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Schneider Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SMC Corp Japan

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SMC Corp Japan are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SMC Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Schneider Electric and SMC Corp

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

The idea behind Schneider Electric SA and SMC Corp Japan 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.