Correlation Between Smith Midland and Fair Isaac

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

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

Diversification Opportunities for Smith Midland and Fair Isaac

-0.06

Correlation Coefficient

Smith Midland  Fair Isaac

Good diversification

The 3 months correlation between Smith and Fair is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Smith Midland Corp and Fair Isaac in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fair Isaac and Smith Midland 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 Midland Corp are associated (or correlated) with Fair Isaac. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fair Isaac has no effect on the direction of Smith Midland i.e., Smith Midland and Fair Isaac go up and down completely randomly.

Pair Corralation between Smith Midland and Fair Isaac

Given the investment horizon of 90 days Smith Midland Corp is expected to under-perform the Fair Isaac. In addition to that, Smith Midland is 2.21 times more volatile than Fair Isaac. It trades about -0.03 of its total potential returns per unit of risk. Fair Isaac is currently generating about 0.09 per unit of volatility. If you would invest  125,920  in Fair Isaac on February 18, 2024 and sell it today you would earn a total of  15,215  from holding Fair Isaac or generate 12.08% return on investment over 90 days.

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

Smith Midland Corp  vs.  Fair Isaac

Smith Midland Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Midland Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's forward indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Fair Isaac

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fair Isaac are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Fair Isaac displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Smith Midland and Fair Isaac

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

The idea behind Smith Midland Corp and Fair Isaac 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.