Correlation Between Loma Negra and Smith Midland
Can any of the company-specific risk be diversified away by investing in both Loma Negra 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 Loma Negra and Smith Midland into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Loma Negra Compania and Smith Midland Corp, you can compare the effects of market volatilities on Loma Negra 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 Loma Negra with a short position of Smith Midland. Check out your portfolio center. Please also check ongoing floating volatility patterns of Loma Negra and Smith Midland.
Diversification Opportunities for Loma Negra and Smith Midland
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Loma and Smith is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Loma Negra Compania 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 Loma Negra 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 Loma Negra Compania 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 Loma Negra i.e., Loma Negra and Smith Midland go up and down completely randomly.
Pair Corralation between Loma Negra and Smith Midland
Given the investment horizon of 90 days Loma Negra is expected to generate 1.61 times less return on investment than Smith Midland. But when comparing it to its historical volatility, Loma Negra Compania is 1.85 times less risky than Smith Midland. It trades about 0.39 of its potential returns per unit of risk. Smith Midland Corp is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest 3,379 in Smith Midland Corp on August 31, 2024 and sell it today you would earn a total of 1,461 from holding Smith Midland Corp or generate 43.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Loma Negra Compania vs. Smith Midland Corp
Performance |
| Timeline |
| Loma Negra Compania |
| Smith Midland Corp |
Loma Negra and Smith Midland Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Loma Negra and Smith Midland
The main advantage of trading using opposite Loma Negra and Smith Midland positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Loma Negra 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.| Loma Negra vs. James Hardie Industries | Loma Negra vs. Summit Materials | Loma Negra vs. United States Lime | Loma Negra vs. Eagle Materials |
| Smith Midland vs. United States Lime | Smith Midland vs. Holcim | Smith Midland vs. Lafargeholcim Ltd ADR | Smith Midland vs. Cementos Pacasmayo SAA |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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