Correlation Between SMC Corp and AIA Group

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

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

Diversification Opportunities for SMC Corp and AIA Group

0.66

Correlation Coefficient

SMC Corp  AIA Group

Poor diversification

The 3 months correlation between SMC and AIA is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding SMC Corp Japan and AIA Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIA Group and SMC Corp 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 SMC Corp Japan are associated (or correlated) with AIA Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIA Group has no effect on the direction of SMC Corp i.e., SMC Corp and AIA Group go up and down completely randomly.

Pair Corralation between SMC Corp and AIA Group

Assuming the 90 days horizon SMC Corp Japan is expected to generate 0.88 times more return on investment than AIA Group. However, SMC Corp Japan is 1.13 times less risky than AIA Group. It trades about 0.0 of its potential returns per unit of risk. AIA Group Ltd is currently generating about -0.03 per unit of risk. If you would invest  2,108  in SMC Corp Japan on September 24, 2024 and sell it today you would lose (139.00) from holding SMC Corp Japan or give up 6.59% of portfolio value over 90 days.

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

SMC Corp Japan  vs.  AIA Group Ltd

SMC Corp Japan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMC Corp Japan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

AIA Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AIA Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with SMC Corp and AIA Group

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

The idea behind SMC Corp Japan and AIA Group Ltd 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.