Correlation Between Smithson Investment and London Stock

Can any of the company-specific risk be diversified away by investing in both Smithson Investment and London Stock 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 London Stock 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 London Stock Exchange, you can compare the effects of market volatilities on Smithson Investment and London Stock 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 London Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smithson Investment and London Stock.

Diversification Opportunities for Smithson Investment and London Stock

0.79

Correlation Coefficient

Smithson Investment  London Stock

Poor diversification

The 3 months correlation between Smithson and London is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Smithson Investment Trust and London Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Stock Exchange 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 London Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Stock Exchange has no effect on the direction of Smithson Investment i.e., Smithson Investment and London Stock go up and down completely randomly.

Pair Corralation between Smithson Investment and London Stock

Assuming the 90 days trading horizon Smithson Investment is expected to generate 3.69 times less return on investment than London Stock. In addition to that, Smithson Investment is 1.47 times more volatile than London Stock Exchange. It trades about 0.02 of its total potential returns per unit of risk. London Stock Exchange is currently generating about 0.11 per unit of volatility. If you would invest  698,456  in London Stock Exchange on September 25, 2024 and sell it today you would earn a total of  425,544  from holding London Stock Exchange or generate 60.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Smithson Investment Trust  vs.  London Stock Exchange

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

London Stock Exchange

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, London Stock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Smithson Investment and London Stock

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

The idea behind Smithson Investment Trust and London Stock Exchange 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.