Correlation Between Summit Materials and Smith Midland

Can any of the company-specific risk be diversified away by investing in both Summit Materials and Smith Midland 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 Summit Materials and Smith Midland into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Summit Materials and Smith Midland Corp, you can compare the effects of market volatilities on Summit Materials and Smith Midland 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 Summit Materials with a short position of Smith Midland. Check out your portfolio center. Please also check ongoing floating volatility patterns of Summit Materials and Smith Midland.

Diversification Opportunities for Summit Materials and Smith Midland

0.7

Correlation Coefficient

Summit Materials  Smith Midland

Poor diversification

The 3 months correlation between Summit and Smith is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and Smith Midland Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Midland Corp and Summit Materials 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 Summit Materials are associated (or correlated) with Smith Midland. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Midland Corp has no effect on the direction of Summit Materials i.e., Summit Materials and Smith Midland go up and down completely randomly.

Pair Corralation between Summit Materials and Smith Midland

Considering the 90-day investment horizon Summit Materials is expected to generate 1.94 times less return on investment than Smith Midland. But when comparing it to its historical volatility, Summit Materials is 1.86 times less risky than Smith Midland. It trades about 0.06 of its potential returns per unit of risk. Smith Midland Corp is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,990  in Smith Midland Corp on August 31, 2024 and sell it today you would earn a total of  2,850  from holding Smith Midland Corp or generate 143.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.79%
Values	Daily Returns

Summit Materials  vs.  Smith Midland Corp

Summit Materials

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Summit Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Smith Midland Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smith Midland Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward indicators, Smith Midland exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Summit Materials and Smith Midland

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

The idea behind Summit Materials and Smith Midland Corp 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.