Correlation Between Smithson Investment and Auto Trader
Can any of the company-specific risk be diversified away by investing in both Smithson Investment 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 Smithson Investment and Auto Trader into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Smithson Investment Trust and Auto Trader Group, you can compare the effects of market volatilities on Smithson Investment 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 Smithson Investment with a short position of Auto Trader. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smithson Investment and Auto Trader.
Diversification Opportunities for Smithson Investment and Auto Trader
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Smithson and Auto is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Smithson Investment Trust 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 Smithson Investment 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 Smithson Investment Trust 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 Smithson Investment i.e., Smithson Investment and Auto Trader go up and down completely randomly.
Pair Corralation between Smithson Investment and Auto Trader
Assuming the 90 days trading horizon Smithson Investment Trust is expected to generate 0.87 times more return on investment than Auto Trader. However, Smithson Investment Trust is 1.15 times less risky than Auto Trader. It trades about 0.18 of its potential returns per unit of risk. Auto Trader Group is currently generating about -0.09 per unit of risk. If you would invest 147,200 in Smithson Investment Trust on October 25, 2024 and sell it today you would earn a total of 4,600 from holding Smithson Investment Trust or generate 3.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smithson Investment Trust vs. Auto Trader Group
Performance |
| Timeline |
| Smithson Investment Trust |
| Auto Trader Group |
Smithson Investment and Auto Trader Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smithson Investment and Auto Trader
The main advantage of trading using opposite Smithson Investment and Auto Trader positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smithson Investment 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.| Smithson Investment vs. Check Point Software | Smithson Investment vs. Thor Mining PLC | Smithson Investment vs. Fresenius Medical Care | Smithson Investment vs. Take Two Interactive Software |
| Auto Trader vs. Samsung Electronics Co | Auto Trader vs. Samsung Electronics Co | Auto Trader vs. Toyota Motor Corp | Auto Trader vs. Reliance Industries Ltd |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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