Correlation Between Smith Douglas and Addus HomeCare

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

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

Diversification Opportunities for Smith Douglas and Addus HomeCare

0.59

Correlation Coefficient

Smith Douglas  Addus HomeCare

Very weak diversification

The 3 months correlation between Smith and Addus is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and Addus HomeCare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addus HomeCare and Smith Douglas 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 Douglas Homes are associated (or correlated) with Addus HomeCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addus HomeCare has no effect on the direction of Smith Douglas i.e., Smith Douglas and Addus HomeCare go up and down completely randomly.

Pair Corralation between Smith Douglas and Addus HomeCare

Given the investment horizon of 90 days Smith Douglas Homes is expected to generate 1.26 times more return on investment than Addus HomeCare. However, Smith Douglas is 1.26 times more volatile than Addus HomeCare. It trades about 0.1 of its potential returns per unit of risk. Addus HomeCare is currently generating about 0.1 per unit of risk. If you would invest  2,610  in Smith Douglas Homes on February 6, 2024 and sell it today you would earn a total of  411.00  from holding Smith Douglas Homes or generate 15.75% return on investment over 90 days.

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

Smith Douglas Homes  vs.  Addus HomeCare

Smith Douglas Homes

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smith Douglas Homes are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical indicators, Smith Douglas exhibited solid returns over the last few months and may actually be approaching a breakup point.

Addus HomeCare

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Addus HomeCare are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Addus HomeCare unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smith Douglas and Addus HomeCare

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

The idea behind Smith Douglas Homes and Addus HomeCare 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .