Correlation Between Virgin Group and SM Investments

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Can any of the company-specific risk be diversified away by investing in both Virgin Group and SM Investments 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 Virgin Group and SM Investments into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Virgin Group Acquisition and SM Investments, you can compare the effects of market volatilities on Virgin Group and SM Investments 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 Virgin Group with a short position of SM Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Virgin Group and SM Investments.

Diversification Opportunities for Virgin Group and SM Investments

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between Virgin and SVTMF is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Virgin Group Acquisition and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments and Virgin Group 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 Virgin Group Acquisition are associated (or correlated) with SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of Virgin Group i.e., Virgin Group and SM Investments go up and down completely randomly.

Pair Corralation between Virgin Group and SM Investments

Given the investment horizon of 90 days Virgin Group Acquisition is expected to generate 3.61 times more return on investment than SM Investments. However, Virgin Group is 3.61 times more volatile than SM Investments. It trades about 0.07 of its potential returns per unit of risk. SM Investments is currently generating about -0.22 per unit of risk. If you would invest  135.00  in Virgin Group Acquisition on September 7, 2024 and sell it today you would earn a total of  7.50  from holding Virgin Group Acquisition or generate 5.56% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Virgin Group Acquisition  vs.  SM Investments

 Performance 
       Timeline  
Virgin Group Acquisition 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Virgin Group Acquisition are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Virgin Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.
SM Investments 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in SM Investments are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain primary indicators, SM Investments reported solid returns over the last few months and may actually be approaching a breakup point.

Virgin Group and SM Investments Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Virgin Group and SM Investments

The main advantage of trading using opposite Virgin Group and SM Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Virgin Group position performs unexpectedly, SM Investments 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 SM Investments will offset losses from the drop in SM Investments' long position.
The idea behind Virgin Group Acquisition and SM Investments 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.

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