Correlation Between SM Investments and Woolworths Holdings

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

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

Diversification Opportunities for SM Investments and Woolworths Holdings

0.59

Correlation Coefficient

SM Investments  Woolworths Holdings

Very weak diversification

The 3 months correlation between SVTMF and Woolworths is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding SM Investments and Woolworths Holdings Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths Holdings and SM Investments 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 SM Investments are associated (or correlated) with Woolworths Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woolworths Holdings has no effect on the direction of SM Investments i.e., SM Investments and Woolworths Holdings go up and down completely randomly.

Pair Corralation between SM Investments and Woolworths Holdings

Assuming the 90 days horizon SM Investments is expected to generate 0.71 times more return on investment than Woolworths Holdings. However, SM Investments is 1.41 times less risky than Woolworths Holdings. It trades about 0.21 of its potential returns per unit of risk. Woolworths Holdings Ltd is currently generating about -0.13 per unit of risk. If you would invest  1,374  in SM Investments on February 1, 2024 and sell it today you would earn a total of  186.00  from holding SM Investments or generate 13.54% return on investment over 90 days.

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

SM Investments  vs.  Woolworths Holdings Ltd

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 newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Woolworths Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woolworths Holdings Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with SM Investments and Woolworths Holdings

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

The idea behind SM Investments and Woolworths Holdings Ltd 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.