Correlation Between Ametek and Smith AO

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

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

Diversification Opportunities for Ametek and Smith AO

0.84

Correlation Coefficient

Ametek  Smith AO

Very poor diversification

The 3 months correlation between Ametek and Smith is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Ametek Inc and Smith AO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smith AO and Ametek 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 Ametek Inc are associated (or correlated) with Smith AO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smith AO has no effect on the direction of Ametek i.e., Ametek and Smith AO go up and down completely randomly.

Pair Corralation between Ametek and Smith AO

Considering the 90-day investment horizon Ametek is expected to generate 146.27 times less return on investment than Smith AO. But when comparing it to its historical volatility, Ametek Inc is 1.63 times less risky than Smith AO. It trades about 0.0 of its potential returns per unit of risk. Smith AO is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  8,140  in Smith AO on January 24, 2024 and sell it today you would earn a total of  550.00  from holding Smith AO or generate 6.76% return on investment over 90 days.

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

Ametek Inc  vs.  Smith AO

Ametek Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ametek Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal primary indicators, Ametek may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Smith AO

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Smith AO are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Smith AO may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Ametek and Smith AO

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

The idea behind Ametek Inc and Smith AO 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.

Check out your portfolio center.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.