Correlation Between Vulcan Materials and Smith Midland

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

Diversification Opportunities for Vulcan Materials and Smith Midland

0.69

Correlation Coefficient

Vulcan Materials  Smith Midland

Poor diversification

The 3 months correlation between Vulcan and Smith is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan 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 Vulcan 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 Vulcan 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 Vulcan Materials i.e., Vulcan Materials and Smith Midland go up and down completely randomly.

Pair Corralation between Vulcan Materials and Smith Midland

Considering the 90-day investment horizon Vulcan Materials is expected to generate 2.35 times less return on investment than Smith Midland. But when comparing it to its historical volatility, Vulcan Materials is 2.56 times less risky than Smith Midland. It trades about 0.19 of its potential returns per unit of risk. Smith Midland Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  3,255  in Smith Midland Corp on August 31, 2024 and sell it today you would earn a total of  1,585  from holding Smith Midland Corp or generate 48.69% return on investment over 90 days.

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

Vulcan Materials  vs.  Smith Midland Corp

Vulcan Materials

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, Vulcan Materials exhibited 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 Vulcan Materials and Smith Midland

The main advantage of trading using opposite Vulcan Materials and Smith Midland positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan 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 Vulcan 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.