Correlation Between X-FAB Silicon and SMA Solar

Can any of the company-specific risk be diversified away by investing in both X-FAB Silicon and SMA Solar 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 X-FAB Silicon and SMA Solar into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between X FAB Silicon Foundries and SMA Solar Technology, you can compare the effects of market volatilities on X-FAB Silicon and SMA Solar 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 X-FAB Silicon with a short position of SMA Solar. Check out your portfolio center. Please also check ongoing floating volatility patterns of X-FAB Silicon and SMA Solar.

Diversification Opportunities for X-FAB Silicon and SMA Solar

0.65

Correlation Coefficient

X-FAB Silicon  SMA Solar

Poor diversification

The 3 months correlation between X-FAB and SMA is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and SMA Solar Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMA Solar Technology and X-FAB Silicon 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 X FAB Silicon Foundries are associated (or correlated) with SMA Solar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMA Solar Technology has no effect on the direction of X-FAB Silicon i.e., X-FAB Silicon and SMA Solar go up and down completely randomly.

Pair Corralation between X-FAB Silicon and SMA Solar

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to generate 0.83 times more return on investment than SMA Solar. However, X FAB Silicon Foundries is 1.21 times less risky than SMA Solar. It trades about -0.06 of its potential returns per unit of risk. SMA Solar Technology is currently generating about -0.13 per unit of risk. If you would invest  515.00  in X FAB Silicon Foundries on September 4, 2024 and sell it today you would lose (79.00) from holding X FAB Silicon Foundries or give up 15.34% of portfolio value over 90 days.

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

X FAB Silicon Foundries  vs.  SMA Solar Technology

X FAB Silicon

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days X FAB Silicon Foundries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

SMA Solar Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMA Solar Technology has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with X-FAB Silicon and SMA Solar

The main advantage of trading using opposite X-FAB Silicon and SMA Solar positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if X-FAB Silicon position performs unexpectedly, SMA Solar 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 SMA Solar will offset losses from the drop in SMA Solar's long position.

The idea behind X FAB Silicon Foundries and SMA Solar Technology 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.