Correlation Between Smiths Group and Auto Trader
Can any of the company-specific risk be diversified away by investing in both Smiths Group and Auto Trader 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 Auto Trader 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 Auto Trader Group, you can compare the effects of market volatilities on Smiths Group and Auto Trader 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 Auto Trader. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smiths Group and Auto Trader.
Diversification Opportunities for Smiths Group and Auto Trader
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Smiths and Auto is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Smiths Group Plc and Auto Trader Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auto Trader Group 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 Auto Trader. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auto Trader Group has no effect on the direction of Smiths Group i.e., Smiths Group and Auto Trader go up and down completely randomly.
Pair Corralation between Smiths Group and Auto Trader
Assuming the 90 days horizon Smiths Group Plc is expected to generate 1.23 times more return on investment than Auto Trader. However, Smiths Group is 1.23 times more volatile than Auto Trader Group. It trades about 0.16 of its potential returns per unit of risk. Auto Trader Group is currently generating about -0.17 per unit of risk. If you would invest 2,081 in Smiths Group Plc on August 30, 2024 and sell it today you would earn a total of 197.00 from holding Smiths Group Plc or generate 9.47% 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. Auto Trader Group
Performance |
| Timeline |
| Smiths Group Plc |
| Auto Trader Group |
Smiths Group and Auto Trader Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smiths Group and Auto Trader
The main advantage of trading using opposite Smiths Group and Auto Trader positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smiths Group position performs unexpectedly, Auto Trader 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 Auto Trader will offset losses from the drop in Auto Trader's long position.| Smiths Group vs. Vestas Wind Systems | Smiths Group vs. Nuscale Power Corp | Smiths Group vs. Ballard Power Systems | Smiths Group vs. Rockwell Automation |
| Auto Trader vs. Tinybeans Group Limited | Auto Trader vs. DGTL Holdings | Auto Trader vs. Sabio Holdings | Auto Trader vs. Zoomd Technologies |
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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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