Correlation Between AIA Group and SMC Corp

Can any of the company-specific risk be diversified away by investing in both AIA Group and SMC Corp 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 AIA Group and SMC Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AIA Group Ltd and SMC Corp Japan, you can compare the effects of market volatilities on AIA Group and SMC Corp 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 AIA Group with a short position of SMC Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of AIA Group and SMC Corp.

Diversification Opportunities for AIA Group and SMC Corp

0.67

Correlation Coefficient

AIA Group  SMC Corp

Poor diversification

The 3 months correlation between AIA and SMC is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding AIA Group Ltd and SMC Corp Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Corp Japan and AIA Group 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 AIA Group Ltd are associated (or correlated) with SMC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMC Corp Japan has no effect on the direction of AIA Group i.e., AIA Group and SMC Corp go up and down completely randomly.

Pair Corralation between AIA Group and SMC Corp

Assuming the 90 days horizon AIA Group Ltd is expected to under-perform the SMC Corp. In addition to that, AIA Group is 1.33 times more volatile than SMC Corp Japan. It trades about -0.15 of its total potential returns per unit of risk. SMC Corp Japan is currently generating about -0.11 per unit of volatility. If you would invest  2,218  in SMC Corp Japan on October 1, 2024 and sell it today you would lose (256.00) from holding SMC Corp Japan or give up 11.54% of portfolio value over 90 days.

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

AIA Group Ltd  vs.  SMC Corp Japan

AIA Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AIA Group Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

SMC Corp Japan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMC Corp Japan has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with AIA Group and SMC Corp

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

The idea behind AIA Group Ltd and SMC Corp Japan 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.