Correlation Between Smith AO and Ingersoll Rand

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

By analyzing existing cross correlation between Smith AO and Ingersoll Rand, you can compare the effects of market volatilities on Smith AO and Ingersoll Rand 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 Ingersoll Rand. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith AO and Ingersoll Rand.

Diversification Opportunities for Smith AO and Ingersoll Rand

0.8

Correlation Coefficient

Smith AO  Ingersoll Rand

Very poor diversification

The 3 months correlation between Smith and Ingersoll is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Smith AO and Ingersoll Rand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ingersoll Rand 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 Ingersoll Rand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ingersoll Rand has no effect on the direction of Smith AO i.e., Smith AO and Ingersoll Rand go up and down completely randomly.

Pair Corralation between Smith AO and Ingersoll Rand

Considering the 90-day investment horizon Smith AO is expected to under-perform the Ingersoll Rand. In addition to that, Smith AO is 1.18 times more volatile than Ingersoll Rand. It trades about -0.22 of its total potential returns per unit of risk. Ingersoll Rand is currently generating about -0.01 per unit of volatility. If you would invest  9,362  in Ingersoll Rand on February 1, 2024 and sell it today you would lose (30.00) from holding Ingersoll Rand or give up 0.32% of portfolio value over 90 days.

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

Smith AO  vs.  Ingersoll Rand

Smith AO

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Smith AO are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Smith AO is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Ingersoll Rand

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ingersoll Rand are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Ingersoll Rand reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smith AO and Ingersoll Rand

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

The idea behind Smith AO and Ingersoll Rand 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.