Correlation Between Smithson Investment and Freeport McMoRan

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

By analyzing existing cross correlation between Smithson Investment Trust and Freeport McMoRan, you can compare the effects of market volatilities on Smithson Investment and Freeport McMoRan 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 Smithson Investment with a short position of Freeport McMoRan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smithson Investment and Freeport McMoRan.

Diversification Opportunities for Smithson Investment and Freeport McMoRan

-0.62

Correlation Coefficient

Smithson Investment  Freeport McMoRan

Excellent diversification

The 3 months correlation between Smithson and Freeport is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Smithson Investment Trust and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan and Smithson Investment 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 Smithson Investment Trust are associated (or correlated) with Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of Smithson Investment i.e., Smithson Investment and Freeport McMoRan go up and down completely randomly.

Pair Corralation between Smithson Investment and Freeport McMoRan

Assuming the 90 days trading horizon Smithson Investment Trust is expected to generate 0.38 times more return on investment than Freeport McMoRan. However, Smithson Investment Trust is 2.63 times less risky than Freeport McMoRan. It trades about 0.08 of its potential returns per unit of risk. Freeport McMoRan is currently generating about -0.09 per unit of risk. If you would invest  140,800  in Smithson Investment Trust on September 22, 2024 and sell it today you would earn a total of  6,200  from holding Smithson Investment Trust or generate 4.4% return on investment over 90 days.

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

Smithson Investment Trust  vs.  Freeport McMoRan

Smithson Investment Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Smithson Investment Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Smithson Investment is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Freeport McMoRan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Smithson Investment and Freeport McMoRan

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

The idea behind Smithson Investment Trust and Freeport McMoRan 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 Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.