Correlation Between Spirax-Sarco Engineering and Smith AO
Can any of the company-specific risk be diversified away by investing in both Spirax-Sarco Engineering and Smith AO 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 Spirax-Sarco Engineering and Smith AO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Spirax Sarco Engineering PLC and Smith AO, you can compare the effects of market volatilities on Spirax-Sarco Engineering and Smith AO 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 Spirax-Sarco Engineering with a short position of Smith AO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spirax-Sarco Engineering and Smith AO.
Diversification Opportunities for Spirax-Sarco Engineering and Smith AO
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Spirax-Sarco and Smith is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Spirax Sarco Engineering PLC and Smith AO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith AO and Spirax-Sarco Engineering 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 Spirax Sarco Engineering PLC are associated (or correlated) with Smith AO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith AO has no effect on the direction of Spirax-Sarco Engineering i.e., Spirax-Sarco Engineering and Smith AO go up and down completely randomly.
Pair Corralation between Spirax-Sarco Engineering and Smith AO
Assuming the 90 days horizon Spirax Sarco Engineering PLC is expected to under-perform the Smith AO. In addition to that, Spirax-Sarco Engineering is 1.31 times more volatile than Smith AO. It trades about -0.09 of its total potential returns per unit of risk. Smith AO is currently generating about -0.02 per unit of volatility. If you would invest 8,113 in Smith AO on August 25, 2024 and sell it today you would lose (769.00) from holding Smith AO or give up 9.48% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 94.76% |
| Values | Daily Returns |
Spirax Sarco Engineering PLC vs. Smith AO
Performance |
| Timeline |
| Spirax-Sarco Engineering |
| Smith AO |
Spirax-Sarco Engineering and Smith AO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Spirax-Sarco Engineering and Smith AO
The main advantage of trading using opposite Spirax-Sarco Engineering and Smith AO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirax-Sarco Engineering position performs unexpectedly, Smith AO 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 Smith AO will offset losses from the drop in Smith AO's long position.| Spirax-Sarco Engineering vs. Aumann AG | Spirax-Sarco Engineering vs. Arista Power | Spirax-Sarco Engineering vs. Atlas Copco AB | Spirax-Sarco Engineering vs. American Commerce Solutions |
| Smith AO vs. Dover | Smith AO vs. Illinois Tool Works | Smith AO vs. Xylem Inc | Smith AO vs. Franklin Electric Co |
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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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