Correlation Between Smith Douglas and Air Products

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

By analyzing existing cross correlation between Smith Douglas Homes and Air Products and, you can compare the effects of market volatilities on Smith Douglas and Air Products 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 Smith Douglas with a short position of Air Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Douglas and Air Products.

Diversification Opportunities for Smith Douglas and Air Products

-0.52

Correlation Coefficient

Smith Douglas  Air Products

Excellent diversification

The 3 months correlation between Smith and Air is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and Air Products and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Products and Smith Douglas 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 Smith Douglas Homes are associated (or correlated) with Air Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Products has no effect on the direction of Smith Douglas i.e., Smith Douglas and Air Products go up and down completely randomly.

Pair Corralation between Smith Douglas and Air Products

Given the investment horizon of 90 days Smith Douglas Homes is expected to generate 2.18 times more return on investment than Air Products. However, Smith Douglas is 2.18 times more volatile than Air Products and. It trades about 0.13 of its potential returns per unit of risk. Air Products and is currently generating about -0.02 per unit of risk. If you would invest  3,105  in Smith Douglas Homes on September 14, 2024 and sell it today you would earn a total of  195.00  from holding Smith Douglas Homes or generate 6.28% return on investment over 90 days.

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

Smith Douglas Homes  vs.  Air Products and

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, Smith Douglas is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Air Products

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Air Products may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Smith Douglas and Air Products

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

The idea behind Smith Douglas Homes and Air Products and 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.