Correlation Between Techtronic Industries and SMC Corp

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

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

Diversification Opportunities for Techtronic Industries and SMC Corp

0.45

Correlation Coefficient

Techtronic Industries  SMC Corp

Very weak diversification

The 3 months correlation between Techtronic and SMC is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Techtronic Industries Ltd and SMC Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Corp and Techtronic Industries 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 Techtronic Industries 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 has no effect on the direction of Techtronic Industries i.e., Techtronic Industries and SMC Corp go up and down completely randomly.

Pair Corralation between Techtronic Industries and SMC Corp

Assuming the 90 days horizon Techtronic Industries Ltd is expected to generate 1.14 times more return on investment than SMC Corp. However, Techtronic Industries is 1.14 times more volatile than SMC Corp. It trades about -0.05 of its potential returns per unit of risk. SMC Corp is currently generating about -0.19 per unit of risk. If you would invest  6,820  in Techtronic Industries Ltd on September 22, 2024 and sell it today you would lose (194.00) from holding Techtronic Industries Ltd or give up 2.84% of portfolio value over 90 days.

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

Techtronic Industries Ltd  vs.  SMC Corp

Techtronic Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

SMC Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMC Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, SMC Corp is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Techtronic Industries and SMC Corp

The main advantage of trading using opposite Techtronic Industries and SMC Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Techtronic Industries 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 Techtronic Industries Ltd and SMC Corp 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.