Correlation Between Simt Mid and Simt Large

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

By analyzing existing cross correlation between Simt Mid Cap and Simt Large Cap, you can compare the effects of market volatilities on Simt Mid and Simt Large 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 Simt Mid with a short position of Simt Large. Check out your portfolio center. Please also check ongoing floating volatility patterns of Simt Mid and Simt Large.

Diversification Opportunities for Simt Mid and Simt Large

0.93

Correlation Coefficient

Simt Mid  Simt Large

Almost no diversification

The 3 months correlation between Simt and Simt is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Simt Mid Cap and Simt Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simt Large Cap and Simt Mid 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 Simt Mid Cap are associated (or correlated) with Simt Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simt Large Cap has no effect on the direction of Simt Mid i.e., Simt Mid and Simt Large go up and down completely randomly.

Pair Corralation between Simt Mid and Simt Large

Assuming the 90 days horizon Simt Mid is expected to generate 5.21 times less return on investment than Simt Large. But when comparing it to its historical volatility, Simt Mid Cap is 1.13 times less risky than Simt Large. It trades about 0.08 of its potential returns per unit of risk. Simt Large Cap is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest  5,115  in Simt Large Cap on September 16, 2024 and sell it today you would earn a total of  285.00  from holding Simt Large Cap or generate 5.57% return on investment over 90 days.

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

Simt Mid Cap  vs.  Simt Large Cap

Simt Mid Cap

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Simt Mid Cap are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Simt Mid is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Simt Large Cap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Simt Large Cap are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Simt Large may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Simt Mid and Simt Large

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

The idea behind Simt Mid Cap and Simt Large Cap 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.