Correlation Between SMU SA and Ripley Corp
Can any of the company-specific risk be diversified away by investing in both SMU SA and Ripley Corp 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 SMU SA and Ripley Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SMU SA and Ripley Corp, you can compare the effects of market volatilities on SMU SA and Ripley Corp 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 SMU SA with a short position of Ripley Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMU SA and Ripley Corp.
Diversification Opportunities for SMU SA and Ripley Corp
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SMU and Ripley is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding SMU SA and Ripley Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ripley Corp and SMU SA 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 SMU SA are associated (or correlated) with Ripley Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ripley Corp has no effect on the direction of SMU SA i.e., SMU SA and Ripley Corp go up and down completely randomly.
Pair Corralation between SMU SA and Ripley Corp
Assuming the 90 days trading horizon SMU SA is expected to generate 0.94 times more return on investment than Ripley Corp. However, SMU SA is 1.06 times less risky than Ripley Corp. It trades about 0.01 of its potential returns per unit of risk. Ripley Corp is currently generating about -0.16 per unit of risk. If you would invest 15,199 in SMU SA on August 26, 2024 and sell it today you would earn a total of 1.00 from holding SMU SA or generate 0.01% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SMU SA vs. Ripley Corp
Performance |
| Timeline |
| SMU SA |
| Ripley Corp |
SMU SA and Ripley Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SMU SA and Ripley Corp
The main advantage of trading using opposite SMU SA and Ripley Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMU SA position performs unexpectedly, Ripley Corp 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 Ripley Corp will offset losses from the drop in Ripley Corp's long position.The idea behind SMU SA and Ripley Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Ripley Corp vs. Cencosud | Ripley Corp vs. Empresas Copec SA | Ripley Corp vs. LATAM Airlines Group | Ripley Corp vs. Sociedad Qumica y |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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