Correlation Between Sage Group and Smiths Group
Can any of the company-specific risk be diversified away by investing in both Sage Group and Smiths Group 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 Sage Group and Smiths Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sage Group PLC and Smiths Group Plc, you can compare the effects of market volatilities on Sage Group and Smiths Group 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 Sage Group with a short position of Smiths Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sage Group and Smiths Group.
Diversification Opportunities for Sage Group and Smiths Group
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Sage and Smiths is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Sage Group PLC and Smiths Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smiths Group Plc and Sage 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 Sage Group PLC are associated (or correlated) with Smiths Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smiths Group Plc has no effect on the direction of Sage Group i.e., Sage Group and Smiths Group go up and down completely randomly.
Pair Corralation between Sage Group and Smiths Group
Assuming the 90 days horizon Sage Group PLC is expected to generate 1.16 times more return on investment than Smiths Group. However, Sage Group is 1.16 times more volatile than Smiths Group Plc. It trades about 0.1 of its potential returns per unit of risk. Smiths Group Plc is currently generating about 0.03 per unit of risk. If you would invest 5,217 in Sage Group PLC on August 30, 2024 and sell it today you would earn a total of 1,400 from holding Sage Group PLC or generate 26.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sage Group PLC vs. Smiths Group Plc
Performance |
| Timeline |
| Sage Group PLC |
| Smiths Group Plc |
Sage Group and Smiths Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sage Group and Smiths Group
The main advantage of trading using opposite Sage Group and Smiths Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sage Group position performs unexpectedly, Smiths Group 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 Smiths Group will offset losses from the drop in Smiths Group's long position.| Sage Group vs. Salesforce | Sage Group vs. SAP SE ADR | Sage Group vs. ServiceNow | Sage Group vs. Intuit Inc |
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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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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