Correlation Between Smiths Group and North American
Can any of the company-specific risk be diversified away by investing in both Smiths Group and North American 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 Smiths Group and North American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smiths Group plc and North American Construction, you can compare the effects of market volatilities on Smiths Group and North American 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 Smiths Group with a short position of North American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smiths Group and North American.
Diversification Opportunities for Smiths Group and North American
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Smiths and North is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Smiths Group plc and North American Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Const and Smiths 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 Smiths Group plc are associated (or correlated) with North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Const has no effect on the direction of Smiths Group i.e., Smiths Group and North American go up and down completely randomly.
Pair Corralation between Smiths Group and North American
Assuming the 90 days trading horizon Smiths Group is expected to generate 1.82 times less return on investment than North American. But when comparing it to its historical volatility, Smiths Group plc is 1.7 times less risky than North American. It trades about 0.03 of its potential returns per unit of risk. North American Construction is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,790 in North American Construction on September 14, 2024 and sell it today you would earn a total of 250.00 from holding North American Construction or generate 13.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smiths Group plc vs. North American Construction
Performance |
| Timeline |
| Smiths Group plc |
| North American Const |
Smiths Group and North American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smiths Group and North American
The main advantage of trading using opposite Smiths Group and North American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smiths Group position performs unexpectedly, North American 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 North American will offset losses from the drop in North American's long position.| Smiths Group vs. North American Construction | Smiths Group vs. Titan Machinery | Smiths Group vs. Infrastrutture Wireless Italiane | Smiths Group vs. MTI WIRELESS EDGE |
| North American vs. Tenaris SA | North American vs. NOV Inc | North American vs. Superior Plus Corp | North American vs. SIVERS SEMICONDUCTORS AB |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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