Correlation Between SM Investments and COL Financial

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

By analyzing existing cross correlation between SM Investments Corp and COL Financial Group, you can compare the effects of market volatilities on SM Investments and COL Financial 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 SM Investments with a short position of COL Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Investments and COL Financial.

Diversification Opportunities for SM Investments and COL Financial

0.53

Correlation Coefficient

SM Investments  COL Financial

Very weak diversification

The 3 months correlation between SM Investments and COL is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding SM Investments Corp and COL Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COL Financial Group and SM Investments 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 SM Investments Corp are associated (or correlated) with COL Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COL Financial Group has no effect on the direction of SM Investments i.e., SM Investments and COL Financial go up and down completely randomly.

Pair Corralation between SM Investments and COL Financial

Assuming the 90 days trading horizon SM Investments Corp is expected to under-perform the COL Financial. But the stock apears to be less risky and, when comparing its historical volatility, SM Investments Corp is 1.18 times less risky than COL Financial. The stock trades about -0.07 of its potential returns per unit of risk. The COL Financial Group is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  178.00  in COL Financial Group on September 25, 2024 and sell it today you would lose (14.00) from holding COL Financial Group or give up 7.87% of portfolio value over 90 days.

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

SM Investments Corp  vs.  COL Financial Group

SM Investments Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SM Investments Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

COL Financial Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COL Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with SM Investments and COL Financial

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

The idea behind SM Investments Corp and COL Financial Group 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.