Correlation Between Smithson Investment and EasyJet PLC
Can any of the company-specific risk be diversified away by investing in both Smithson Investment and EasyJet PLC 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 EasyJet PLC 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 EasyJet PLC, you can compare the effects of market volatilities on Smithson Investment and EasyJet PLC 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 EasyJet PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smithson Investment and EasyJet PLC.
Diversification Opportunities for Smithson Investment and EasyJet PLC
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Smithson and EasyJet is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Smithson Investment Trust and EasyJet PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EasyJet PLC 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 EasyJet PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EasyJet PLC has no effect on the direction of Smithson Investment i.e., Smithson Investment and EasyJet PLC go up and down completely randomly.
Pair Corralation between Smithson Investment and EasyJet PLC
Assuming the 90 days trading horizon Smithson Investment Trust is expected to generate 0.89 times more return on investment than EasyJet PLC. However, Smithson Investment Trust is 1.12 times less risky than EasyJet PLC. It trades about -0.25 of its potential returns per unit of risk. EasyJet PLC is currently generating about -0.5 per unit of risk. If you would invest 151,600 in Smithson Investment Trust on October 12, 2024 and sell it today you would lose (7,200) from holding Smithson Investment Trust or give up 4.75% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Smithson Investment Trust vs. EasyJet PLC
Performance |
| Timeline |
| Smithson Investment Trust |
| EasyJet PLC |
Smithson Investment and EasyJet PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Smithson Investment and EasyJet PLC
The main advantage of trading using opposite Smithson Investment and EasyJet PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smithson Investment position performs unexpectedly, EasyJet PLC 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 EasyJet PLC will offset losses from the drop in EasyJet PLC's long position.| Smithson Investment vs. Blackstone Loan Financing | Smithson Investment vs. First Class Metals | Smithson Investment vs. Empire Metals Limited | Smithson Investment vs. Ross Stores |
| EasyJet PLC vs. Cornish Metals | EasyJet PLC vs. Applied Materials | EasyJet PLC vs. Travel Leisure Co | EasyJet PLC vs. Capital Metals PLC |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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