Correlation Between Smithson Investment and GB Group

Can any of the company-specific risk be diversified away by investing in both Smithson Investment and GB 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 Smithson Investment and GB Group 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 GB Group plc, you can compare the effects of market volatilities on Smithson Investment and GB 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 Smithson Investment with a short position of GB Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smithson Investment and GB Group.

Diversification Opportunities for Smithson Investment and GB Group

0.74

Correlation Coefficient

Smithson Investment  GB Group

Poor diversification

The 3 months correlation between Smithson and GBG is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Smithson Investment Trust and GB Group plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GB Group plc 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 GB Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GB Group plc has no effect on the direction of Smithson Investment i.e., Smithson Investment and GB Group go up and down completely randomly.

Pair Corralation between Smithson Investment and GB Group

Assuming the 90 days trading horizon Smithson Investment is expected to generate 2.68 times less return on investment than GB Group. But when comparing it to its historical volatility, Smithson Investment Trust is 3.11 times less risky than GB Group. It trades about 0.08 of its potential returns per unit of risk. GB Group plc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  31,260  in GB Group plc on September 23, 2024 and sell it today you would earn a total of  3,260  from holding GB Group plc or generate 10.43% return on investment over 90 days.

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

Smithson Investment Trust  vs.  GB Group plc

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.

GB Group plc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GB Group plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, GB Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Smithson Investment and GB Group

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

The idea behind Smithson Investment Trust and GB Group plc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.