Correlation Between SMA Solar and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both SMA Solar and Diageo PLC 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 SMA Solar and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SMA Solar Technology and Diageo PLC, you can compare the effects of market volatilities on SMA Solar and Diageo PLC 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 SMA Solar with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMA Solar and Diageo PLC.
Diversification Opportunities for SMA Solar and Diageo PLC
0.68 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SMA and Diageo is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding SMA Solar Technology and Diageo PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC and SMA Solar 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 SMA Solar Technology are associated (or correlated) with Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC has no effect on the direction of SMA Solar i.e., SMA Solar and Diageo PLC go up and down completely randomly.
Pair Corralation between SMA Solar and Diageo PLC
Assuming the 90 days trading horizon SMA Solar Technology is expected to under-perform the Diageo PLC. In addition to that, SMA Solar is 2.98 times more volatile than Diageo PLC. It trades about -0.18 of its total potential returns per unit of risk. Diageo PLC is currently generating about 0.03 per unit of volatility. If you would invest 252,722 in Diageo PLC on September 15, 2024 and sell it today you would earn a total of 9,128 from holding Diageo PLC or generate 3.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SMA Solar Technology vs. Diageo PLC
Performance |
| Timeline |
| SMA Solar Technology |
| Diageo PLC |
SMA Solar and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SMA Solar and Diageo PLC
The main advantage of trading using opposite SMA Solar and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMA Solar position performs unexpectedly, Diageo PLC 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 Diageo PLC will offset losses from the drop in Diageo PLC's long position.| SMA Solar vs. Samsung Electronics Co | SMA Solar vs. Samsung Electronics Co | SMA Solar vs. Hyundai Motor | SMA Solar vs. Reliance Industries Ltd |
| Diageo PLC vs. Ecclesiastical Insurance Office | Diageo PLC vs. Sparebank 1 SR | Diageo PLC vs. Lloyds Banking Group | Diageo PLC vs. Zegona Communications Plc |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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