Correlation Between Solid Power and Smallcap

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

By analyzing existing cross correlation between Solid Power and Smallcap Sp 600, you can compare the effects of market volatilities on Solid Power and Smallcap 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 Solid Power with a short position of Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Solid Power and Smallcap.

Diversification Opportunities for Solid Power and Smallcap

0.85

Correlation Coefficient

Solid Power  Smallcap

Very poor diversification

The 3 months correlation between Solid and Smallcap is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Solid Power and Smallcap Sp 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Sp 600 and Solid Power 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 Solid Power are associated (or correlated) with Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Sp 600 has no effect on the direction of Solid Power i.e., Solid Power and Smallcap go up and down completely randomly.

Pair Corralation between Solid Power and Smallcap

Given the investment horizon of 90 days Solid Power is expected to generate 7.63 times more return on investment than Smallcap. However, Solid Power is 7.63 times more volatile than Smallcap Sp 600. It trades about 0.23 of its potential returns per unit of risk. Smallcap Sp 600 is currently generating about 0.16 per unit of risk. If you would invest  166.00  in Solid Power on May 27, 2025 and sell it today you would earn a total of  299.00  from holding Solid Power or generate 180.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Solid Power  vs.  Smallcap Sp 600

Solid Power

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Solid Power are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain fundamental indicators, Solid Power reported solid returns over the last few months and may actually be approaching a breakup point.

Smallcap Sp 600

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smallcap Sp 600 are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Smallcap may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Solid Power and Smallcap

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

The idea behind Solid Power and Smallcap Sp 600 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.