Correlation Between Macys and SM Investments

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

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

Diversification Opportunities for Macys and SM Investments

-0.31

Correlation Coefficient

Macys  SM Investments

Very good diversification

The 3 months correlation between Macys and SVTMF is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Macys Inc and SM Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments and Macys 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 Macys Inc are associated (or correlated) with SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments has no effect on the direction of Macys i.e., Macys and SM Investments go up and down completely randomly.

Pair Corralation between Macys and SM Investments

Taking into account the 90-day investment horizon Macys is expected to generate 2.08 times less return on investment than SM Investments. But when comparing it to its historical volatility, Macys Inc is 1.38 times less risky than SM Investments. It trades about 0.16 of its potential returns per unit of risk. SM Investments is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,360  in SM Investments on February 22, 2024 and sell it today you would earn a total of  200.00  from holding SM Investments or generate 14.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Macys Inc  vs.  SM Investments

Macys Inc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Macys Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Macys may actually be approaching a critical reversion point that can send shares even higher in June 2024.

SM Investments

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Macys and SM Investments

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

The idea behind Macys Inc and SM Investments 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.