Correlation Between Smithson Investment and Tungsten West

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

Diversification Opportunities for Smithson Investment and Tungsten West

0.11

Correlation Coefficient

Smithson Investment  Tungsten West

Average diversification

The 3 months correlation between Smithson and Tungsten is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Smithson Investment Trust and Tungsten West PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tungsten West 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 Tungsten West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tungsten West PLC has no effect on the direction of Smithson Investment i.e., Smithson Investment and Tungsten West go up and down completely randomly.

Pair Corralation between Smithson Investment and Tungsten West

Assuming the 90 days trading horizon Smithson Investment is expected to generate 1.91 times less return on investment than Tungsten West. But when comparing it to its historical volatility, Smithson Investment Trust is 9.23 times less risky than Tungsten West. It trades about 0.14 of its potential returns per unit of risk. Tungsten West PLC is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  325.00  in Tungsten West PLC on September 14, 2024 and sell it today you would lose (12.00) from holding Tungsten West PLC or give up 3.69% of portfolio value over 90 days.

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

Smithson Investment Trust  vs.  Tungsten West PLC

Smithson Investment Trust

Risk-Adjusted Performance

11 of 100

Good

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

Tungsten West PLC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tungsten West PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Tungsten West exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smithson Investment and Tungsten West

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

The idea behind Smithson Investment Trust and Tungsten West 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.