Correlation Between Smiths Group and Sage Group
Can any of the company-specific risk be diversified away by investing in both Smiths Group and Sage 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 Smiths Group and Sage Group 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 Sage Group PLC, you can compare the effects of market volatilities on Smiths Group and Sage 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 Smiths Group with a short position of Sage Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smiths Group and Sage Group.
Diversification Opportunities for Smiths Group and Sage Group
0.17 | Correlation Coefficient |
Average diversification
The 3 months correlation between Smiths and Sage is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Smiths Group Plc and Sage Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sage Group PLC 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 Sage Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sage Group PLC has no effect on the direction of Smiths Group i.e., Smiths Group and Sage Group go up and down completely randomly.
Pair Corralation between Smiths Group and Sage Group
Assuming the 90 days horizon Smiths Group is expected to generate 3.32 times less return on investment than Sage Group. But when comparing it to its historical volatility, Smiths Group Plc is 1.53 times less risky than Sage Group. It trades about 0.12 of its potential returns per unit of risk. Sage Group PLC is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 5,262 in Sage Group PLC on August 27, 2024 and sell it today you would earn a total of 1,232 from holding Sage Group PLC or generate 23.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smiths Group Plc vs. Sage Group PLC
Performance |
| Timeline |
| Smiths Group Plc |
| Sage Group PLC |
Smiths Group and Sage Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smiths Group and Sage Group
The main advantage of trading using opposite Smiths Group and Sage Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smiths Group position performs unexpectedly, Sage 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 Sage Group will offset losses from the drop in Sage Group's long position.| Smiths Group vs. Arista Power | Smiths Group vs. Atlas Copco AB | Smiths Group vs. American Commerce Solutions |
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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