Correlation Between Smith Douglas and Mazda

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

Diversification Opportunities for Smith Douglas and Mazda

0.7

Correlation Coefficient

Smith Douglas  Mazda

Poor diversification

The 3 months correlation between Smith and Mazda is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and Mazda Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mazda Motor 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 Mazda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mazda Motor has no effect on the direction of Smith Douglas i.e., Smith Douglas and Mazda go up and down completely randomly.

Pair Corralation between Smith Douglas and Mazda

Given the investment horizon of 90 days Smith Douglas Homes is expected to generate 0.98 times more return on investment than Mazda. However, Smith Douglas Homes is 1.02 times less risky than Mazda. It trades about -0.03 of its potential returns per unit of risk. Mazda Motor is currently generating about -0.07 per unit of risk. If you would invest  3,636  in Smith Douglas Homes on September 13, 2024 and sell it today you would lose (309.00) from holding Smith Douglas Homes or give up 8.5% of portfolio value over 90 days.

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

Smith Douglas Homes  vs.  Mazda Motor

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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Mazda Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mazda Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak 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.

Pair Trading with Smith Douglas and Mazda

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

The idea behind Smith Douglas Homes and Mazda Motor 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.