Correlation Between Smith AO and Enerpac Tool

Can any of the company-specific risk be diversified away by investing in both Smith AO and Enerpac Tool 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 Smith AO and Enerpac Tool into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Smith AO and Enerpac Tool Group, you can compare the effects of market volatilities on Smith AO and Enerpac Tool 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 Smith AO with a short position of Enerpac Tool. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith AO and Enerpac Tool.

Diversification Opportunities for Smith AO and Enerpac Tool

0.77

Correlation Coefficient

Smith AO  Enerpac Tool

Poor diversification

The 3 months correlation between Smith and Enerpac is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Smith AO and Enerpac Tool Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enerpac Tool Group and Smith AO 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 Smith AO are associated (or correlated) with Enerpac Tool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enerpac Tool Group has no effect on the direction of Smith AO i.e., Smith AO and Enerpac Tool go up and down completely randomly.

Pair Corralation between Smith AO and Enerpac Tool

Considering the 90-day investment horizon Smith AO is expected to under-perform the Enerpac Tool. In addition to that, Smith AO is 1.64 times more volatile than Enerpac Tool Group. It trades about -0.2 of its total potential returns per unit of risk. Enerpac Tool Group is currently generating about 0.09 per unit of volatility. If you would invest  3,491  in Enerpac Tool Group on February 2, 2024 and sell it today you would earn a total of  58.00  from holding Enerpac Tool Group or generate 1.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Smith AO  vs.  Enerpac Tool Group

Smith AO

Risk-Adjusted Performance

6 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Smith AO are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Smith AO may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Enerpac Tool Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enerpac Tool Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Enerpac Tool may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Smith AO and Enerpac Tool

The main advantage of trading using opposite Smith AO and Enerpac Tool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smith AO position performs unexpectedly, Enerpac Tool 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 Enerpac Tool will offset losses from the drop in Enerpac Tool's long position.

The idea behind Smith AO and Enerpac Tool Group 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.

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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.