Correlation Between Ammo and Smith Wesson
Can any of the company-specific risk be diversified away by investing in both Ammo and Smith Wesson 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 Ammo and Smith Wesson into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ammo Inc and Smith Wesson Brands, you can compare the effects of market volatilities on Ammo and Smith Wesson 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 Ammo with a short position of Smith Wesson. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ammo and Smith Wesson.
Diversification Opportunities for Ammo and Smith Wesson
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ammo and Smith is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Ammo Inc and Smith Wesson Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith Wesson Brands and Ammo 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 Ammo Inc are associated (or correlated) with Smith Wesson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith Wesson Brands has no effect on the direction of Ammo i.e., Ammo and Smith Wesson go up and down completely randomly.
Pair Corralation between Ammo and Smith Wesson
Given the investment horizon of 90 days Ammo Inc is expected to generate 2.3 times more return on investment than Smith Wesson. However, Ammo is 2.3 times more volatile than Smith Wesson Brands. It trades about 0.1 of its potential returns per unit of risk. Smith Wesson Brands is currently generating about 0.11 per unit of risk. If you would invest 112.00 in Ammo Inc on August 31, 2024 and sell it today you would earn a total of 10.00 from holding Ammo Inc or generate 8.93% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Ammo Inc vs. Smith Wesson Brands
Performance |
Timeline |
Ammo Inc |
Smith Wesson Brands |
Ammo and Smith Wesson Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Ammo and Smith Wesson
The main advantage of trading using opposite Ammo and Smith Wesson positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ammo position performs unexpectedly, Smith Wesson 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 Wesson will offset losses from the drop in Smith Wesson's long position.Ammo vs. Sturm Ruger | Ammo vs. Kratos Defense Security | Ammo vs. VSE Corporation | Ammo vs. Smith Wesson Brands |
Smith Wesson vs. Ammo Inc | Smith Wesson vs. Park Electrochemical | Smith Wesson vs. Ammo Preferred | Smith Wesson vs. National Presto Industries |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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